Considering the growing global demand for oil and gas, the energy sector is well-positioned to maintain its growth momentum. Given this backdrop, let us explore some energy stocks North American Construction Group Ltd. (NOA), Ranger Energy Services, Inc. (RNGR), and Graham Corporation (GHM), with a promising outlook, which could be solid buys now.
Despite broad economic concerns and geopolitical instability, the energy industry fundamentals look promising. Thanks to the reopening of China, the global energy demand is anticipated to rise to record levels in 2023. Moreover, as per Statista, the global demand for crude oil (including biofuels) will increase to 101.89 million barrels per day in 2023.
In addition, a supply crunch induced by Russia’s pledge to keep its output low throughout 2023 and surprise production cuts by OPEC could keep the oil prices elevated in the upcoming months.
Moreover, companies engaged in supplying oilfield services, products, technology, and systems to the oil and natural gas industry worldwide are also expected to thrive in the upcoming months.
As per a report by energy intelligence Rystad Energy, the energy services sector is anticipated to grow to $1 trillion by 2025. The company also expects the next seven years to provide a strong market for energy services.
Considering such industry tailwinds, investors could opt for quality energy stocks NOA, RNGR, and GHM now.
North American Construction Group Ltd. (NOA)
Headquartered in Acheson, Canada, NOA provides equipment maintenance, mining, and heavy construction to its clients in resource development and industrial construction sectors in the United States, Canada, and Australia. The company operates through two broad divisions: Heavy Construction & Mining; and Equipment Maintenance.
NOA’s forward EV/EBITDA of 3.96x is 17.6% lower than the industry average of 4.81x. The stock’s forward Price/Sales multiple of 0.73 is 37.2% lower than the 1.16x industry average.
On April 25, NOA’s Board of Directors declared a quarterly dividend of ten Canadian cents (CAD0.10) per common share, payable to common shareholders on July 7, 2023.
The company’s annual dividend translates to a dividend yield of 1.53% at the current price. Its four-year average dividend yield is 1.25%. It has grown its dividend payments at a CAGR of 34.6% and 32.9% over the past three and five years, respectively.
During the fiscal first quarter that ended March 31, 2023, NOA’s revenue increased 37.3% year-over-year to CAD242.61 million ($178.98 million). Its gross profit rose 86.4% year-over-year to CAD40.92 million ($30.19 million).
Its adjusted EBIT and adjusted EBITDA grew 74.5% and 46.6% year-over-year to CAD43.07 million ($31.78 million) and CAD84.62 million ($62.43 million), respectively.
Moreover, the company’s adjusted net earnings and adjusted EPS increased 73.1% and 88.2% year-over-year to CAD25.28 million ($18.65 million) and CAD0.96, respectively.
Analysts expect NOA’s revenue and EPS for the fiscal second quarter that ended June 2023 to increase 18.7% and 136.2% year-over-year to $155.60 million and $0.31, respectively. It surpassed the consensus revenue in each of the trailing four quarters and EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 49.6% over the past six months and 55.4% over the past year to close the last trading session at $19.19.
It is no surprise that NOA has an overall A rating, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has an A grade for Momentum and Sentiment and a B for Quality. NOA is ranked third among 46 stocks in the B-rated Energy – Services industry.
Click here to access NOA’s additional POWR Ratings for Growth, Value, and Stability.
Ranger Energy Services, Inc. (RNGR)
RNGR provides onshore high-specification well service rigs, wireline completion services, and complementary services to exploration and production companies in the United States. It operates through three segments: High Specification Rigs; Wireline Services; and Processing Solutions and Ancillary Services.
In terms of forward EV/Sales, RNGR’s 0.45x is 75.1% lower than the 1.80x industry average. Likewise, its forward Price/Sales multiple of 0.41 is 64.6% lower than the industry average of 1.17.
For the fiscal first quarter that ended March 31, 2023, RNGR’s total revenue increased 27.4% year-over-year to $157.50 million. The company’s adjusted EBITDA came in at $20.1 million, up 109.4% from the year-ago quarter. Its free cash flow for the quarter stood at $12 million, compared to a negative $13.70 million for the previous year’s quarter.
Its net income for the quarter stood at $6.20 million compared to a net loss of $5.70 million in the prior-year quarter, and its income per common share came in at $0.25, compared to a net loss per share of $0.31 in the year-ago quarter.
For the fiscal second quarter ending June 2023, RNGR’s revenue is expected to increase 9.1% year-over-year to $167.50 million. Its EPS is expected to increase 910.9% year-over-year to $0.40. RNGR topped consensus revenue estimates in three of the four trailing quarters.
Over the past year, the stock has gained 16.6% to close the last trading session at $11.30. Moreover, the stock gained 6.9% over the past six months.
RNGR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Value and a B for Growth. RNGR is ranked first within the same industry.
To see the other ratings of RNGR for Stability, Sentiment, and Quality, click here.
Graham Corporation (GHM)
GHM is engaged in designing and manufacturing fluid, power, heat transfer, and vacuum technologies for the defense, space, energy, and process industries. It offers products for power plant systems, torpedo ejection and power systems, thermal management systems, power generation systems, chemical and petrochemical processing, and cooling systems.
On April 6, GHM announced that it was awarded a follow-on order to support the MK48 Mod 7 Heavyweight Torpedo program valued at approximately $23 million. GHM’s President and CEO Daniel J. Thoren said, “We believe the combination of our engineering know-how, highly skilled workforce, and precision machining and manufacturing expertise enabled us to win this follow-on contract award.”
He added, “We have made significant investments to provide the high quality and reliability required to supply these critical components for the U.S. Navy and other foreign militaries. Additionally, we are further investing to expand our capacity to address growing demand and ensure timely delivery of our products.”
In terms of forward EV/Sales, GHM’s 0.92x is 45.1% lower than the 1.60x industry average. Likewise, its forward Price/Sales multiple of 0.88 is 32.1% lower than the industry average of 1.30.
For the fiscal third quarter that ended December 31, 2022, GHM’s net sales increased 38.6% year-over-year to $39.87 million. Its gross margin came in at 15.6%, compared to 1.9% in the year-ago quarter. The company’s adjusted EBITDA came in at $2.24 million, compared to an adjusted EBITDA of negative $2.60 million in the year-ago quarter.
Its adjusted net income came in at $857 thousand, compared to an adjusted net loss of $2.90 million in the prior-year quarter. Additionally, its adjusted EPS came in at $0.08, compared to an adjusted loss per share of $0.27 in the year-ago quarter.
For the fiscal first quarter ending June 2023, GHM’s revenue is expected to increase 8.1% year-over-year to $38.99 million. Its EPS is expected to come in at $0.02. It surpassed the consensus revenue in each of the trailing four quarters and EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 65.5% to close the last trading session at $12.46. It has gained 23.4% over the past six months.
GHM’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth, Value, and Momentum. GHM is ranked #4 within the same industry.
The additional ratings of GHM for Stability and Quality can be viewed here.
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NOA shares were trading at $19.23 per share on Tuesday afternoon, up $0.04 (+0.21%). Year-to-date, NOA has gained 44.45%, versus a 7.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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