Despite the market being significantly volatile in September, owing to various economic factors, controlled supply and high demand for oil and gas led to a price increase for these commodities. In its meeting this week, OPEC, and its allies, have decided to stick to their previous plan of gradually increasing oil production and declined the need to ramp up production. As a result, U.S. crude traded above $79 a barrel this week, the highest since 2014. Today, U.S. natural gas futures closed at $5.68, representing a gain of 125% from the level seen a year ago.
The demand for oil and natural gas is expected to increase as winter approaches, increasing prices. This should significantly benefit energy infrastructure companies, among others. Investor interest in the energy sector is evident from the Energy Select Sector SPDR Fund’s (XLE) 15% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 2.5% loss.
Given this backdrop, it could be wise to bet on energy infrastructure stocks Western Midstream Partners, LP (WES), Flowserve Corporation (FLS), Holly Energy Partners, L.P. (HEP), and Star Group, L.P. (SGU).
Western Midstream Partners, LP (WES)
WES operates, acquires, and develops midstream energy assets primarily in the United States. This Master Limited Partnership (MLP) is engaged in gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural gas liquids (NGLs), and crude oil; and gathering and disposing of produced water.
The company had achieved a record DJ Basin gas throughput of 1.4 Bcf/d for the second quarter, representing a 5% rise sequentially.
Also, it had entered into a long-term gas gathering and processing agreement with Crestone Peak Resources in the second quarter. Besides dedicating 74,000 acres in the Watkins to WES, Crestone will dedicate an additional 148,000 acres connected to its gas gathering system. WES is looking forward to enabling safe, sustainable, and efficient operations and other development plans in the DJ Basin for years to come.
For its fiscal second quarter ended June 30, 2021, WES’ total revenues came in at $719.13 million, representing a 7.1% year-over-year rise. The company’s adjusted gross profit increased 10.2% year-over-year to $677.24 million. Its adjusted EBITDA came in at $491.13 million for the quarter, up 10.8% from the prior-year period. At the end of the quarter, the company had $305.57 million in cash and cash equivalents.
Analysts expect WES’ EPS to improve 91.5% year-over-year in the current year to $2.26. The consensus revenue estimate of $2.91 billion for the current year represents a 4.8% rise year-over-year. Over the past year, the stock has gained 156.7% to close yesterday’s trading session at $21.36.
WES’ POWR Ratings reflect this promising outlook. 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.
The stock has a B grade for Quality, Momentum, and Stability. Click here to see the additional WES ratings for Growth, Value, and Sentiment.
Of the 38 stocks in the B-rated MLPs – Oil & Gas industry, WES is ranked #6.
Flowserve Corporation (FLS)
FLS designs, manufactures, distributes, and services industrial flow management equipment throughout the world. The company produces pumps, valves, and mechanical seals and primarily serves oil and gas, chemical and pharmaceuticals, power generation, water management markets, and general industries. It distributes its products through direct sales, distributors, and sales representatives.
FLS’ 2020 Environmental, Social, and Governance (ESG) Report, released on September 30, 2021, highlights its commitment to supporting customers through the energy transition of the future with increased investment in innovation and product development. The company had made significant progress on reducing emissions and staying on track to meet its 2030 carbon emission reduction target.
FLS is providing support to Pfizer Inc. (PFE) for the production of its COVID-19 vaccine. Upon immediate support needed during the engineering runs of vaccine production, FLS’ team from various countries has provided pumps, cryogenic ball valves, and mechanical seals. FLS’ critical product expertise, engineering, and design support could result in a long-term partnership with PFE.
As of June 30, 2021, FLS had 630.40 million in cash and cash equivalents. Analysts expect FLS’ EPS to grow at a rate of 14.7% per annum over the next five years. Over the past year, the stock has gained 29.8% and ended yesterday’s trading session at $35.36.
FLS’ strong fundamentals are reflected in its POWR Ratings. The stock has a B grade for Value. Click here to see the additional ratings for FLS (Sentiment, Growth, Stability, Quality, Momentum).
FLS is ranked #42 of 81 stocks in the A-rated Industrial – Machinery industry.
Holly Energy Partners, L.P. (HEP)
HEP is engaged in operating a system of petroleum product and crude pipelines, storage tanks, distribution terminals, loading rack facilities, and refinery processing units. The company’s services include transporting products through its pipeline, terminaling refined products, and other hydrocarbons, and storing and providing other services at its terminals.
On August 3, 2021, HEP and HollyFrontier Corporation (HFC) entered into definitive agreements to acquire Sinclair Oil Corporation and Sinclair Transportation Company from The Sinclair Companies. HEP will acquire Sinclair’s integrated crude and refined products pipelines and terminal assets, including 1,200 miles of pipelines, eight product terminals, two crude terminals with 4.5 MMbbl of operated storage, and its interests in three pipeline joint ventures. With this acquisition, HEP will have the scale and incremental earnings power to capture new organic growth opportunities and increase cash returns to unitholders.
For its fiscal second quarter ended June 30, 2021, HEP’s total revenues increased 10% year-over-year to $126.24 million. The company’s operating income came in at $56.32 million, representing a 7.3% year-over-year improvement. Its adjusted EBITDA came in at $88.26 million for the quarter, up 10.1% from the prior-year period. As of June 30, 2021, the company had $19.56 million in cash and cash equivalents.
Analysts expect HEP’s EPS to improve 30.4% year-over-year to $2.10 in the current year. The consensus revenue estimate of $514.28 million for the current year indicates a 3.3% rise from the prior-year period. HEP surpassed the consensus EPS estimates in three of the trailing four quarters. Analysts expect the stock’s EPS to grow at a rate of 7% per annum over the next five years. HEP has gained 54.8% over the past year to end yesterday’s trading session at $18.92.
HEP’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has a B grade for Stability, Momentum, and Quality. Click here to see the additional ratings for HEP’s Growth, Value, and Sentiment.
HEP is ranked #3 of 38 stocks in the B-rated MLPs – Oil & Gas industry.
Star Group, L.P. (SGU)
SGU is a service energy provider to residential and commercial customers. It sells diesel, gasoline, home heating oil on a delivery-only basis, and plumbing services. It also installs, maintains, and repairs heating and air conditioning equipment.
SGU’s total sales came in at $283.10 million for the fiscal third quarter ended June 30, 2021, representing a 21.9% rise from the prior-year period. The company had $5.50 million in cash and cash equivalents as of June 30, 2021. The stock has gained 8.1% over the past year to close yesterday’s trading session at $10.34.
It’s no surprise that SGU has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Quality, and a B grade for Value, Momentum, and Sentiment. Click here to see the additional ratings for SGU’s Growth and Stability.
Of the 38 stocks in the B-rated MLPs – Oil & Gas industry, SGU is ranked #1.
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WES shares were trading at $21.40 per share on Thursday afternoon, up $0.04 (+0.19%). Year-to-date, WES has gained 63.13%, versus a 18.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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