The energy industry is well-positioned to experience substantial growth thanks to the surging oil and natural gas prices, backed by constrained supply due to growing tensions in the Middle East. Also, the increasing consumption of energy across the globe is positively impacting the market.
Considering these factors in mind, it could be wise to add quality energy stocks, NewMarket Corporation (NEU), Oceaneering International, Inc. (OII), and Superior Drilling Products, Inc. (SDPI) to your portfolio for solid returns.
In its monthly report, the Organization of the Petroleum Exporting Countries (OPEC) stated that world oil demand will likely rise by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025. Both forecasts remain unchanged from last month, indicating relatively substantial growth in global oil demand over the next two years.
Also, a further boost to economic growth could positively fuel the oil demand. Amid concerns relating to the continued high-interest rates, the recent conflict in the Middle East has disrupted supply, further supporting surging oil prices in 2024.
As per U.S. Energy Information Administration (EIA), the Brent crude oil spot price averaged $83 per barrel in February, a rise of $3/b from January. Due to the continued uncertainty and increased risk around the attacks, the prices hiked in February as commercial ships transiting the Red Sea shipping channel were being targeted.
Furthermore, OPEC+’s extension of voluntary production cuts will be reflected in the prices as we advance. These cuts are now extended through the second quarter of 2024, including an additional voluntary production cut from Russia.
The oil and gas market is projected to grow from $7.19 trillion in 2023 to $7.62 trillion in 2024, thanks to the increase in crude oil and natural gas production and the expansion of the petrochemical industry. Further, the market is expected to grow to $9.35 trillion by 2028, expanding at a CAGR of 5.4% during the forecast period (2024-2028).
The focus on emission reduction solutions, the shift towards digital technologies, and the growing popularity of reservoir modeling are some of the major trends shaping the oil and gas market during the forecast period.
Moreover, investors’ interest in energy stocks is evident from the Energy Select Sector SPDR ETF’s (XLE) 18.6% returns over the past year.
Given the industry’s solid growth prospects, investing in fundamentally strong energy stocks NEU, OII, and SDPI could be wise for future gains.
Let’s discuss the fundamentals of these stocks in detail:
NewMarket Corporation (NEU)
NEU engages in the manufacturing and selling of petroleum additives. It provides lubricant additives for vehicle and industrial applications, engine oil additives designed for passenger cars, driveline additives for products like transmission fluids, and industrial additives.
On February 22, 2024, NEU’s board of directors declared a quarterly dividend of $2.50 per share on its common stock, reflecting an increase of $0.25, or approximately 11%, compared to the last quarterly dividend of $2.25 per share. The dividend is payable on April 1, 2024, to shareholders of record at the close of business on March 15, 2024.
NEU’s annual dividend of $10 translates to a yield of 1.60% at the current share price. Its four-year average dividend yield is 2.19%. Moreover, the company’s dividend payouts have increased at a CAGR of 6.8% over the past three years. NewMarket has raised its dividends for five consecutive years.
On January 17, 2024, NEU completed the acquisition of AMPAC Intermediate Holdings, LLC, the parent company of American Pacific Corporation, for around $700 million. The acquisition of AMPAC bodes well with NEU’s plan to expand its operations in other segments, which will benefit the company in the long run.
“While we remain committed to our core petroleum additives business, we are also committed to identifying terrific opportunities outside of the petroleum additives business that meet our M&A and diversification criteria. We think the acquisition of AMPAC is a great example of that approach,” said NEU’s Chairman and CEO, Thomas E. Gottwald.
NEU’s trailing-12-month EBIT margin and net income margin of 19.28% and 14.41% are 75.4% and 187.8% higher than the respective industry averages of 10.99% and 5.01%. Further, the stock’s trailing-12-month Levered FCF margin of 17.49% is considerably higher than the industry average of 5.21%.
For the fiscal year that ended December 31, 2023, NEU posted net sales of $2.70 billion, while its segment operating profit increased 35.3% year-over-year to $509.44 million. Its income before income tax expense grew 40.6% from the prior year to $488.96 million.
Also, the company’s net income and EPS of $388.86 million and $40.44 indicate growth of 39.1% and 45.6% year-over-year, respectively. As of December 31, 2023, the company’s cash and cash equivalents came in at $111.94 million versus $68.71 million as of December 31, 2022.
Shares of NEU have gained 38.6% over the past six months and 75.2% over the past year to close the last trading session at $625.30.
NEU’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
NEU has a B grade for Sentiment, Quality, and Stability. It is ranked #9 among 82 stocks in the B-rated Chemicals industry.
In addition to the POWR Ratings we’ve stated above, we also have NEU ratings for Value, Growth, and Momentum. Get all NEU ratings here.
Oceaneering International, Inc. (OII)
OII offers engineered services and products, and robotic solutions to the offshore energy, defense, aerospace, manufacturing, and entertainment industries internationally. The company operates in Subsea Robotics; Manufactured Products; Offshore Projects Group; Integrity Management & Digital Solutions; and Aerospace and Defense Technologies segments.
During the fourth quarter of 2023, OII’s Manufactured Products segment won multiple contracts, whose aggregating revenue amounted to approximately $200 million. Two contracts constitute a considerable portion of the forecasted value: large, high-quality, greenfield development located in the Gulf of Mexico and staged development in the Black Sea.
On October 9, 2023, OII’s subsidiary Marine Production Systems do Brasil Ltda. secured a five-year contract from Petróleo Brasileiro S.A. to operate three existing drill pipe riser systems to support intervention and completion operations in Brazil. The contract value was estimated to be up to $75 million in revenue during the five-year contract period.
In terms of forward EV/Sales, OII is trading at 1.04x, 47.7% lower than the industry average of 1.99x. Similarly, the stock’s forward Price/Sales multiple of 0.89 is 39.9% lower than the industry average of 1.48.
During the fourth quarter that ended December 31, 2023, OII’s revenue increased 22.1% year-over-year to $654.63 million. Its income from operations grew 12.5% from the year-ago value to $47.45 million. The company’s adjusted net income and adjusted EPS came in at $19.43 million and $0.19, up 204.7% and 216.7% from the prior year’s quarter, respectively.
Furthermore, the company’s adjusted EBITDA increased 7.3% year-over-year to $75.14 million.
As per the company’s outlook for the first quarter of 2024, OII expects its EBITDA to range between $330 million and $380 million. Also, for the full year, the company’s free cash flow is expected to be $110 million - $150 million.
Street expects OII’s revenue for the second quarter (ending June 2024) to increase 7% year-over-year to $639.68 million, while its EPS is expected to grow 34.4% year-over-year to $0.32. Further, for the fiscal year 2024, the company’s revenue and EPS are expected to increase 6.9% and 54.7% year-over-year to $2.59 billion and $1.24, respectively.
Over the past month, the stock has gained 3.6% and surged 34.2% over the past year to close the last trading session at $22.84.
OII’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Momentum. Within the Energy – Services industry, OII is ranked #14 of 50 stocks.
Click here to access additional ratings of OII for Sentiment, Quality, Value, and Stability.
Superior Drilling Products, Inc. (SDPI)
SDPI operates as a drilling and completion tool tech company, that designs, engineers, manufactures, sells, rents, and repairs drilling and completion tools globally. The company’s drilling solutions include Drill-N-Ream; Strider; and V-Stream. It also manufactures and refurbishes polycrystalline diamond compact drill bits for an oil field services company.
SDPI’s revenue has grown at a CAGR of 26.1% over the past three years. The company’s tangible book value has increased 69.8% over the same timeframe, while its total assets have improved at a CAGR of 27.5%.
SDPI’s trailing-12-month gross profit margin and net income margin of 60.92% and 35.45% are 31.8% and 167.5% higher than the respective industry average of 46.23% and 13.25%. Further, the stock’s trailing-12-month ROCE of 60.11% is 240.8% higher than the 17.64% industry average.
During the fourth quarter that ended December 31, 2023, SDPI posted total revenue of $4.27 million. The company’s net income and EPS of $5.59 million and $0.18 indicate growth of 1576.9% and 1700% from the prior year’s quarter, respectively. Its adjusted EBITDA came in at $439.44 thousand for the quarter.
In addition, the company’s total assets came in at $27.04 million as of December 31, 2023, compared to $17.60 million as of December 31, 2022.
SDPI’s stock has surged 27.3% over the past month and 11.5% over the past six months to close the last trading session at $0.89.
SDPI’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and Sentiment and a B for Quality and Value. SDPI is ranked #2 out of 16 stocks in the Energy - Drilling industry.
Click here to access additional ratings of SDPI for Growth and Stability.
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NEU shares were trading at $629.01 per share on Wednesday morning, up $3.71 (+0.59%). Year-to-date, NEU has gained 15.71%, versus a 9.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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