Despite oil and gas prices retreating from their peaks due to macroeconomic uncertainties caused by inflation and high-interest rates, the energy sector is expected to stay afloat due to strong demand for oil and gas. Let’s discuss the strong fundamentals of best-performing energy stocks, Marathon Petroleum Corporation (MPC), Valero Energy Corporation (VLO), PBF Energy Inc. (PBF), Unit Corporation (UNTC), and Epsilon Energy Ltd. (EPSN).
Dashing all hopes, the latest inflation report and the U.S. bank failures sparked fears of a fresh financial crisis, following which oil prices plunged over 4% to a three-month low. Fears of higher interest rate hikes from the Fed led to a decline in crude prices.
However, with the reopening of the Chinese economy and the relaxation of its COVID-19 curbs, OPEC raised its forecast for higher oil demand in 2023. It expects Chinese oil demand to grow by 710,000 bpd in 2023, up from last month’s forecast of 590,000 bpd and a contraction in 2022. Further, OPEC expects the world oil demand to increase by 2.32 million bpd this year.
Additionally, the Energy Select Sector SPDR Fund (XLE) has gained 9.4% over the past year, compared to the broader SPDR S&P 500 ETF Trust’s (SPY) 9.1% decline over the same period. Furthermore, according to a Reuters poll, a tighter market is expected to push oil prices above $90 in the second half of the year.
As the sector is expected to remain a bright spot this year, fundamentally sound energy stocks MPC, VLO, PBF, UNTC, and EPSN could be excellent additions to your watchlist in 2023.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company through two segments: Refining & Marketing; and Midstream.
On March 8, the company announced the acquisition of a 49.9% interest in LF Bioenergy, an emerging producer of Renewable Natural Gas (RNG) in the United States, from Cresta Fund Management for $50 million. This acquisition serves as an opportunity for further integration and strengthens MPC's goal to lower the carbon intensity of its operations and product offerings.
MPC’s total revenues and other income rose 12.6% year-over-year for the fourth quarter that ended December 31, 2022, to $40.09 billion. The company’s adjusted net income increased 291.9% year-over-year to $3.11 billion, while its adjusted EPS grew 411.5% from the prior-year quarter to $6.65. Also, its adjusted EBITDA came in at $5.80 billion, up 107.6% year-over-year.
In terms of forward non-GAAP P/E, MPC is trading at 6.17x, 19.4% lower than the industry average of 7.66x. Its forward EV/Sales multiple of 0.54 is 68% lower than the industry average of 1.68. In addition, its forward Price/Sales ratio of 0.38 is 68.6% lower than the industry average of 1.19.
Analysts expect MPC’s EPS to increase 279.2% year-over-year to $5.50 in the fiscal first quarter (ending March 31, 2023). It surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
Shares of MPC have gained 67.2% over the past year to close the last trading session at $125.16. Also, it is currently trading above its 50-day and 200-day moving averages of $124.54 and $108.29, respectively, indicating an uptrend.
MPC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and Quality and a B for Growth and Sentiment. In the 90-stock B-rated Energy – Oil & Gas industry, it is ranked #2. To see additional POWR Ratings for MPC for Value and Stability, click here.
Valero Energy Corporation (VLO)
VLO is a manufacturer and marketer of petroleum-based and low-carbon liquid transportation fuels and petrochemical products. The company operates in three segments: Refining; Renewable Diesel; and Ethanol. Its offerings include conventional, premium, and reformulated gasoline, California Air Resources Board (CARB) gasoline and diesel, and other refined petroleum products.
On March 16, the company paid a quarterly dividend of $1.02 per share, representing an increase of 4.1% from the last quarter. This raises the annualized dividend rate on VLO’s common stock to $4.08 per share, which yields 3.21% on prevailing prices. Its dividend has grown at a 2.5% CAGR over the past three years and a 6.4% CAGR over the past five years.
In terms of forward EV/Sales, VLO is trading at 0.37x, 78.4% lower than the industry average of 1.70x. Likewise, its forward Price/Sales multiple of 0.30 is 74.6% lower than the 1.20 industry average.
VLO’s revenues increased 16.3% year-over-year to $41.75 billion in the fiscal 2022 fourth quarter (ended December 31, 2022). Its operating income improved 169.4% year-over-year to $4.29 billion. Adjusted net income attributable to VLO came in at $3.23 billion, up 226.6% year-over-year. The company’s adjusted earnings per share came in at $8.45, registering an increase of 250.6% from the prior-year period.
Street expects VLO’s EPS for the first quarter (ending March 31, 2023) to increase 182.6% year-over-year to $6.53. Moreover, the company surpassed the EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 49.7% to close the last trading session at $127.17, higher than its 200-day moving average of $122.84. Also, it gained marginally year-to-date.
VLO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth, Value, and Quality. In the same industry, it is ranked #4 out of 90 stocks. Click here to see the other ratings of VLO for Stability and Sentiment.
PBF Energy Inc. (PBF)
PBF is a petroleum refiner and supplier of gasoline, diesel fuel, jet fuel, unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants, and other petroleum products. The company operates through two segments: Refining and Logistics.
On February 16, PBF and Eni Sustainable Mobility entered into a definitive agreement to partner in a 50-50 joint venture, St. Bernard Renewables LLC (SBR), which would own the renewable diesel project currently under construction co-located with PBF's Chalmette refinery in Louisiana. The joint venture reflects both partners' commitment to deliver more sustainable transportation fuels using low carbon intensity feedstocks.
Commenting on this strategic partnership, PBF President Matthew Lucey said, "The St. Bernard Renewables project will benefit greatly from PBF and Eni's complementary strengths and expertise. The project will utilize existing processing infrastructure and diverse inbound and outbound logistics and is ideally situated to support growing demand for low-carbon fuels."
Last year in December, backed by its continued momentum and strong cash generation capabilities, PBF’s board of directors authorized a new $500 million share repurchase program of Class A common stock.
Also, in November, PBF and PBF Logistics LP (PBFX) announced the completion of the previously announced agreement and plan of merger to acquire all the outstanding common units representing limited partner interests of PBFX.
In the fourth quarter, which ended on December 31, 2022, PBF’s revenues increased 31.6% year-over-year to $10.85 billion. Its income from operations rose 228.3% from its year-ago value to $955.60 million.
The company’s adjusted net income increased 285.7% year-over-year to $642.60 billion, while its EPS stood at $4.86, up 257.4% from the prior-year quarter. Also, its adjusted EBITDA grew 145.2% from the year-ago value to $1.04 billion.
In terms of forward non-GAAP P/E, PBF is trading at 3.67x, 53% lower than the industry average of 7.82x. Its forward EV/Sales and EV/EBIT multiples of 0.15 and 2.86 are 91.2% and 60.1% lower than the industry averages of 1.70 and 7.16, respectively. In addition, its forward Price/Sales ratio of 0.14 compares to the industry average of 1.20.
For the fiscal first quarter (ending March 31, 2023), its EPS is expected to increase 704.9% year-over-year to $2.82. Over the past year, the stock has gained 105.5% to close the last trading session at $40.54. Also, it is currently trading above its 200-day moving average of $37.90.
PBF’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
It has an A grade for Value and Momentum and a B for Growth and Quality. Within the same industry, it is ranked #11. Click here to see the additional ratings for PBF (Stability and Sentiment).
Unit Corporation (UNTC)
UNTC engages in the exploration, acquisition, development, and production of oil and natural gas properties in the United States. The company operates through three segments: Oil and Natural Gas; Contract Drilling; and Mid-Stream.
On January 31, UNTC paid a special cash dividend of $10.00 per share. Earlier in the same month, the company also approved a quarterly cash dividend policy beginning in its second quarter. The initial quarterly dividend will be $2.50 per share, payable on a date in the company’s second quarter that is yet to be determined.
For the nine-month period that ended September 30, 2022, UNTC’s total revenues increased 6% year-over-year to $443.20 million. Income from operations rose 74.8% from the year-ago value to $197.06 million. Net income attributable to UNTC came in at $89.03 million and $8.79 per share, compared to a net loss of $8.64 million and $0.74 per share in the prior-year period.
In terms of trailing-12-month EV/Sales, UNTC is trading at 0.36x, 77.1% lower than the industry average of 1.56x. Also, its trailing-12-month EV/EBITDA and EV/EBIT multiples of 1.03x and 1.24x are 80.5% and 83% lower than the industry averages of 5.29x and 7.26x, respectively.
The stock has lost 7.4% over the nine months to close the last trading session at $42.50.
It’s no surprise that UNTC has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Value, Momentum, and Quality. Within the Energy - Oil & Gas industry, it is ranked #5 of 90 stocks.
In addition to the POWR Ratings we stated above, we also have UNTC’s ratings for Growth, Stability, and Sentiment. Get all UNTC ratings here.
Epsilon Energy Ltd. (EPSN)
EPSN, a natural gas and oil company, engages in the acquisition, development, gathering, and production of oil and gas reserves in the United States. It operates through Upstream and Gathering System segments.
On March 8, EPSN’s board of directors declared a dividend of $0.0625 per share of common stock, payable to its shareholders on March 31. The company’s four-year average dividend yield is 0.62%, and its current dividend translates to a 5.13% yield.
In terms of trailing 12-month EV/Sales, EPSN is trading at 1.06x, 32.2% lower than the industry average of 1.56x. Its trailing 12-month EV/EBITDA multiple of 1.37 is 74.1% lower than the industry average of 5.29. In addition, its trailing 12-month EV/EBIT multiple of 1.56 is 78.5% lower than the industry average of 7.26x.
EPSN’s total revenue increased 62.2% year-over-year to $21.24 million for the third quarter that ended September 30, 2022. Its operating income increased 102.7% year-over-year to $14.39 million, while its net income grew 588.1% from the prior-year value to $9.61 million.
The company’s net income per share came in at $0.41, representing a 583.3% year-over-year increase. In addition, its adjusted EBITDA increased 143.7% year-over-year to $16.54 million.
EPSN shares have lost 12.7% over the past year to close the last trading session at $4.87.
EPSN’ strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It has an A grade for Quality and a B for Value and Sentiment. Out of 90 stocks in the same industry, it is ranked #3.
Beyond what is stated above, we’ve also rated EPSN for Growth, Momentum, and Stability. Get all the EPSN ratings here.
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MPC shares were trading at $123.60 per share on Friday afternoon, down $1.56 (-1.25%). Year-to-date, MPC has gained 6.82%, versus a 2.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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