The oil and gas industry has been recovering since the second half of 2020 as countries worldwide have worked to reopen their industrial and manufacturing sectors. Voluntary OPEC production cuts and rising global demand led to a steady increase in oil prices in the first quarter. While the difficult coronavirus situation in India is derailing oil prices from their recent highs, the broader outlook for the oil industry is promising. The oil and gas asset integrity management services market is expected to grow at an 8.7% CAGR over the next five years.
Typically engaged in the oil and gas industry, Master Limited Partnerships (MPLs) usually bring tax benefits of a partnership, combined with the liquidity of publicly traded securities, thus enabling them to offer high yields to investors. These companies are likely to gain the attention of income investors amid the current market volatility. The high demand for crude oil stocks is evidenced by iShares U.S. Oil & Gas Exploration & Production ETF’s (IEO) 96.7% returns over the past six months compared to S&P 500 Trust ETF’s (SPY) 27.8% gains over the period.
Western Midstream Partners, LP (WES)
WES operates, acquires, and develops midstream energy assets primarily in the United States. This MLP is engaged in gathering, compressing, treating, processing and transporting natural gas, and gathering, stabilizing and transporting condensate, natural gas liquids (NGLs) and crude oil, and gathering and disposing of produced water.
WES is scheduled to distribute quarterly cash of $0.32 per unit on May 14, representing a 1.3% sequential rise. This payout is consistent with the company’s annualized 5% distribution growth. The stock has distributed $1.26 in dividends annually, which translates to a dividend yield of 6.4%.
On March 22, WES announced a secondary public offering of 10 million shares. The company is expected to raise $173.5 million in gross proceeds from the offering.
WES’ operating income increased 11.8% year-over-year to $372.95 million for the fourth quarter, ended December 31, 2020. Its adjusted gross profit came in at $648.40 million, which is significantly higher than in the prior-year period. Its net income increased 7% sequentially to $263.89 million. Also, its EPS increased 12.7% sequentially to $0.62.
A $0.62 consensus EPS estimate for the third quarter, ending September 30, 2021 represents a 9.5% improvement year-over-year. WES surpassed consensus EPS estimates in each of the trailing four quarters. The $2.78 billion consensus revenue estimate for the fiscal year ending December 2022 represents a 6.7% rise year-over-year.
The stock has gained 126.3% over the past year, and 141% over the past six months. WES closed Friday’s trading session at $19.64.
WES’ 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.
The stock has a B grade for Quality. We have also graded WES for Value, Growth, Momentum, Stability, and Sentiment. Click here to access all WES ratings.
WES is ranked #6 of 40 stocks in the B-rated MLPs – Oil & Gas industry.
Global Partners LP (GLP)
GLP is a midstream logistics and marketing company. The company operates through three segments: Wholesale, Gasoline Distribution and Station Operations, and Commercial. It is engaged in the purchasing, selling, storing and logistics of transporting petroleum and related products, including gasoline and gasoline blend stocks, distillates, residual oil, renewable fuels, crude oil, natural gas and propane.
GLP is scheduled to distribute quarterly cash of $0.58 per unit on May 14, indicating a 4.5% increase sequentially. The stock has distributed $2.30 in dividends annually, which translates to a 9.5% dividend yield.
On April 26, GLP declared a $0.61 per unit cash distribution on the company’s 9.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units, and $0.34 per unit on its 9.50% Series B Fixed Rate Cumulative Redeemable Perpetual Preferred Units, payable on May 17.
GLP priced an offering of 3 million preferred units at $25 per unit, on March 17. The company intends to use $75 million in gross proceeds from this offering to reduce its debt burden under a credit agreement.
For the fourth quarter ended December 31, 2020, GLP’s gross profit came in at $166.21 million, which represented a 10.1% rise year-over-year. GLP’s operating income came in at $32.69 million, up more than 58% from the prior-year period. The company’s net income for the quarter was $4.44 million, compared to a net loss of $828,000 in the fourth quarter of 2019. Also, its EPS was $0.06 for the quarter, compared to a $0.08 loss per share in the prior-year period.
Analysts expect GLP’s EPS to improve 14.5% year-over-year for the third quarter, ending September 30, to $0.57. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $3.80 billion consensus revenue estimate for the second quarter (ending June 30, 2021) represents a 158.4% rise year-over-year.
The stock has gained 102.6% over the past year, and more than 160% over the past nine months.
GLP’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has an A grade for Value, and a B grade for Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see GLP’s ratings for Momentum, Growth, Quality, and Stability here.
GLP is ranked #3 in the same industry.
Star Group, L.P. (SGU)
SGU is a service energy provider to residential and commercial customers in the United States. It sells diesel, gasoline, and home heating oil on a delivery only basis, as well as plumbing services. It also installs, maintains, and repairs heating and air conditioning equipment.
SGU has increased its quarterly distribution by 7.5% sequentially to $0.14, payable May 11. The stock has paid $0.57 in dividends annually, which translates to a 5.4% dividend yield.
For the fiscal year 2021 first quarter, ended December 31, 2020, SGU’s total sales increased 103.7% sequentially to $373.32 billion. The company’s operating income was $54.79 million, which represents a 29.1% rise year-over-year. Its net income came in at $37.86 million for the quarter, up 36.4% from the prior-year period. Also, its EPS increased more than 51% year-over-year to $0.74.
It has gained 34.1% over the past year to close Friday’s trading session at $10.59.
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 Value and Quality, and a B grade for Growth and Stability. Click here to see the additional ratings for SGU (Momentum and Sentiment).
SGU is ranked #1 in the same industry.
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WES shares were trading at $19.91 per share on Monday afternoon, up $0.27 (+1.37%). Year-to-date, WES has gained 49.39%, versus a 12.22% 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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