The oil & gas industry has made an impressive comeback from historical lows hit in April last year. Its robust rebound was mainly led by OPEC members and their allies, who implemented unprecedented production cuts to support prices after demand plunged during the pandemic. In the 14th OPEC and non-OPEC Ministerial Meeting on March 4, OPEC and non-OPEC ministers agreed to maintain current, reduced, production levels this month and in April. Saudi Arabia added that it would extend its 1m b/d voluntary production cut into April.
Also, the U.S.’ recent $1.9 trillion coronavirus relief package has started driving consumer spending. This, coupled with a fast-paced, national vaccination drive, is expected to revive industrial production significantly, thereby boosting energy demand. According to the U.S. Energy Information Administration’s latest forecast, U.S. crude production will average 11.10 million b/d in 2021, down from 11.30 million b/d in 2020 and 12.30 million b/d in 2019.
While some analysts predict the burgeoning clean energy movement will be a potential threat to the oil & gas industry, the demand for oil is not expected to be much affected in the near future given the sizable investments and time still needed to make renewable energy truly competitive with fossil fuels.
Hence, we think Western Midstream Partners, LP (WES), Enable Midstream Partners, LP (ENBL), and Star Group, L.P. (SGU) could deliver substantial gains in the near term. These stocks’ high dividend yield makes them even more attractive investments amid the current market volatility.
Western Midstream Partners, LP (WES)
WES gathers, compresses, treats, processes, and transports natural gas. It also gathers and of produced water (a byproduct of oil & gas operations) for its customers. The company also buys and sells natural gas, natural-gas liquids, and condensate.
Yesterday, WES priced aa secondary public offering of 10,000,000 common units, representing limited partner interests in WES, by an affiliate of Occidental Petroleum. The offering raised $173.5 million.
WES recently completed the sale of its 14.8% equity interest in Fort Union Gas Gathering, LLC, with an option agreement to sell WES’s Bison treating facility for an upfront consideration of $27.0 million.
WES’ operating income increased 11.8% year-over-year to $372.95 million in the fourth quarter, ended December 31, 2020. Its adjusted ebitda has risen 8.1% from the year-ago value to $483.98 million, while its free cash flow has improved 941.3% to $464.74 million.
Analysts expect WES to report an EPS of $2.38 in its fiscal 2021 (ending December 31), up 101.7% year-to-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 134.7% over the past six months.
WES pays a quarterly dividend of $0.31, cumulating as an annual dividend of $1.24, representing a 7.19% yield. The company’s four-year average dividend yield is 8.87%.
WES’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
WES has a B grade for Sentiment, Quality, and Momentum. Of the 41 stocks in the B-rated MLPs – Oil & Gas industry, the stock is ranked #2.
In total, we rate WES on eight different levels. Beyond what we stated above, we also have given WES grades for Growth, Value, and Stability. Get all WES’s ratings here.
Enable Midstream Partners, LP (ENBL)
ENBL owns, operates and develops strategically located natural gas and crude oil infrastructure assets. The company operates in two business segments: Gathering and Processing, and Transportation and Storage.
Last month, ENBL forged a merger agreement with Energy Transfer LP (ET), in which ET will acquire ENBL in an all-equity transaction valued at approximately $7.2 billion. This combination of ET’s significant infrastructure with Enable’s complementary assets will allow the combined company to pursue additional commercial opportunities and achieve cost savings, while enhancing ENBL’s ability to serve customers.
ENBL’s transportation and storage segments’ gross margin has increased 2.2% year-over-year to $142 million in the fourth quarter ended December 31, 2020, due primarily to an increase in transportation and storage services. Its operating income has risen 124.2% from its year-ago value to $139 million, while its EPS has improved 850% to $0.19.
Analysts expect ENBL’s revenues to grow 18% year-over-year to $2.91 billion in its fiscal 2021 (ending December 31). A consensus EPS estimate of $0.65 for the current year represents a 3.2% improvement from the year-ago value. The stock has gained 61.5% over the past six months.
ENBL pays a quarterly dividend of $0.17, culminating in an annual dividend of $0.66, which represents a 10.03%. The company’s four-year average dividend is 13.56%.
ENBL has a B grade for Momentum and Value in our POWR Ratings system. It is ranked #13 in the same industry.
Click here to see the additional POWR Ratings for ENBL (Stability, Quality, Growth, and Sentiment).
Star Group, L.P. (SGU)
SGU specializes in the sale of home heating products and services to residential and commercial customers. The company also sells diesel, gasoline, and home heating oil on a delivery only basis. It provides plumbing services and installs, maintains, and repairs heating and air conditioning equipment.
SGU’s operating income has increased 29.1% year-over-year to $54.79 million in the fourth quarter, ended December 31, 2020. Its adjusted ebitda has risen slightly from its year-ago value to $45.35 million, while its EPS has improved 51% to $0.74, due primarily to a favorable change in the fair value of derivative instruments, and lower depreciation and amortization expenses. The stock has gained 8.2% over the past six months.
SGU pays a $0.13 quarterly dividend, which an annual dividend of $0.53, representing a 5.1% yield. The company’s five-year average dividend yield is 5.08%.
SGU’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. SGU has an A grade for Quality and Value, and a B for Growth and Sentiment. It is currently ranked #1 of 41 stocks in the same industry.
Click here to see the additional POWR Ratings for SGU (Stability and Momentum).
The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
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WES shares were trading at $18.17 per share on Wednesday afternoon, up $0.87 (+5.03%). Year-to-date, WES has gained 34.22%, versus a 4.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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