Amid rising demand for oil and gas, constrained supplies and production cuts should keep increasing oil prices. Therefore, energy stocks Chevron Corporation (CVX), Kinder Morgan, Inc. (KMI), and PBF Energy Inc. (PBF), which have gained solid momentum lately, could be wise watchlist additions.
The demand for oil remains strong and is projected to further amplify in the third quarter of 2023, primarily supported by the peak summer driving and travel season. Energy experts at Capital Economics forecast that jet fuel will lead to a surge in oil demand in 2023.
China and India, the world's top and third-largest oil importers, respectively, are likely to fuel oil demand growth. International Energy Forum’s (IEF) Secretary-General, Joseph McMonigle, contends that the two countries together are expected to account for 2 million bpd of demand increase in the second half of 2023. Also, as per OPEC's recently published Monthly Oil Market Report (MOMR), crude oil demand for 2023 is projected to reach 2.4 million bpd.
However, tightened oil supply, resulting from significant production cuts by top oil-exporting nations, Saudi Arabia and Russia, and unforeseen supply disruptions from regions like Libya and Nigeria, could potentially tip the balance in favor of rising prices.
Regarding the supply constraints, Joseph McMonigle, said, “So, for the second half of this year, we’re going to have serious problems with supply keeping up, and as a result, you’re going to see prices respond to that.”
Immediate industry trends have been witnessed in Brent and WTI crude oil prices stabilizing at new highs above $80 and $84 per barrel, respectively. Goldman Sachs Group Inc. (GS) foresees oil prices ratcheting up to $86 per barrel at year-end, attributing this to an unprecedented demand for oil and decreasing supply causing a marked market deficit.
According to the Energy Information Administration (EIA), the U.S. gasoline inventories witnessed an additional contraction of 786,000 barrels in the July 21 week, signifying a noticeable 7% decline compared to the five-year average. This coincides with a reduction in gasoline production to 9.5 million bpd, marking the lowest seasonal inventory level since 2015.
Data from GasBuddy indicate a 0.6% uptick in retail gasoline demand in the United States for the week ending Saturday, attributed to the peak summer driving season. The demand-supply discordance nudged the average gasoline price upward by 13.4 cents, achieving a high for the year at $3.714 per gallon, as per AAA data.
Considering these industry dynamics, energy stocks such as CVX, KMI, and PBF, witnessing robust momentum, could be worth watching now.
Chevron Corporation (CVX)
CVX manages investments in subsidiaries and affiliates and provides administrative, financial, and technological support to United States and international subsidiaries involved in integrated energy and chemicals operations. The company’s segments include Upstream and Downstream.
On July 05, Bunge Limited (BG) and CVX’s subsidiary Renewable Energy Group Inc. acquired Chacraservicios S.r.l., based in Argentina, from the Italian-based Adamant Group. This latest investment in novel seeds adds a new oil source to BG and CVX’s global supply chains and will help both companies meet the escalating lower carbon renewable feedstock demand.
On June 12, CVX paid all holders a quarterly dividend of $1.51 per share. Its forward dividend rate of $6.04 per share translates to a 3.74% yield on the current market prices. The company has a four-year average dividend yield of 4.52%. Its dividend payments have grown at 5.7% and 5.9% CAGRs over the past three and five years, respectively.
Quarterly shareholder distributions were a record $7.2 billion, including $2.8 billion in dividend payments and share repurchases of $4.4 billion (over 27 million shares repurchased during the quarter and nearly 50 million shares year-to-date).
CVX’s forward EV/Sales of 1.48x is 30.6% lower than the industry average of 2.13x. Its forward EV/EBIT and Price/Sales multiples of 9.18 and 1.44 are 2.2% and 1.4% lower than the industry averages of 9.39 and 1.46, respectively.
CVX’s trailing-12-month levered FCF margin of 13.01% is 120.2% higher than the 5.91% industry average. Its trailing-12-month asset turnover ratio of 0.92x is 42.7% higher than the industry average of 0.65x.
For the fiscal second quarter that ended June 30, 2023, CVX’s Permian Basin production reached 772,000 barrels of oil equivalent per day. Also, with a deep resource inventory and advantageous royalty position, CVX anticipates robust cash flow until 2040.
During the fiscal second quarter that ended June 30, 2023, cash inflow from operations came at $6.30 billion. The company’s adjusted earnings and adjusted earnings per share came in at $5.78 billion and $3.08, respectively.
The consensus revenue and EPS estimates stand at $49.75 billion and $3.28, respectively, for the fiscal third quarter ending September 2023. Moreover, it surpassed consensus revenue estimates in all four trailing quarters and EPS in three of the four trailing quarters, which is impressive.
Over the past year, the stock has gained 7% to close the last trading session at $159.66. It gained 4% over the past month. Currently, the stock is trading above its 50-day and 100-day moving averages of $155.98 and $159.44, respectively.
CVX’s mixed prospects are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CVX has an A grade for Momentum and a B for Quality. The stock is ranked #47 in the 89-stock Energy – Oil & Gas industry.
Beyond what we have highlighted above, one can see CVX’s additional POWR Ratings for Growth, Value, Stability, and Sentiment here.
Kinder Morgan, Inc. (KMI)
KMI is an energy infrastructure company in North America that operates through four segments: Natural Gas Pipelines; Products Pipelines; Terminals; and CO2. The company owns and operates approximately 83,000 miles of pipelines and 140 terminals.
On May 31, KMI announced its plan to expand the working gas storage capacity at its Markham Storage facility in Matagorda County. KMI has reached an agreement with Texas Brine Company LLC’s subsidiary, Underground Services Markham, LLC, to lease an additional cavern at Markham, to provide over 6 billion cubic feet (Bcf) incremental working gas storage capacity and 650 million cubic feet per day (MMcf/d) incremental withdrawal capacity on KMI’s Texas intrastate pipeline system.
This expansion could provide the required capacity to supply gas-fired electric generation facilities within ERCOT and provide electric service to over one million Texas homes.
On July 19, KMI’s board of directors approved a dividend of $0.2825 per share for the second quarter, payable to stockholders on August 15, 2023. This dividend is a 2% year-over-year increase.
It pays an annual dividend of $1.13 per share, which translates to a 6.30% yield on the current market prices. The company has a four-year average dividend yield of 6.23%. Its dividend payments have grown at 3% and 11.5% CAGRs over the past three and five years, respectively.
During the second quarter, KMI repurchased about 12.3 million shares for $203.4 million ($16.57 per share), whereas, year-to-date, it repurchased approximately 19.9 million shares for $329.9 million ($16.61 per share), leaving $1.73 billion in remaining authorized capacity for additional share repurchases.
KMI’s forward Price/Book of 1.31x is 16.3% lower than the 1.57x industry average. Likewise, its forward EV/Sales multiple of 4.06 is 20.3% lower than its 5-year average of 5.09.
KMI’s trailing-12-month levered FCF margin of 8.87% is 50.2% higher than the 5.91% industry average. Its trailing-12-month cash from operations of $5.20 billion is 747.5% higher than the industry average of $613.79 million.
KMI’s revenues came in at $3.50 billion for the fiscal second quarter that ended June 30, 2023, while its operating income rose 2.4% year-over-year to $1.03 billion. Its adjusted EBITDA came in at $1.81 billion.
The company’s adjusted earnings and EPS stood at $540 million and $0.24, respectively. Its free cash flow came in at $1.02 billion for the same quarter. KMI’s cash, cash equivalents, and restricted deposits for the six months that ended June 30, 2023, increased 24.7% year-over-year to $520 million.
Analysts expect KMI’s revenue for the fiscal third quarter ending September 2023 to be $4.88 billion, while its EPS is expected to increase marginally year-over-year to $0.25. It has surpassed the consensus EPS estimates in three of the trailing four quarters.
KMI has gained 6% over the past month to close its last trading session at $17.80. Over the past three months, it has gained 2.8%. Currently, the stock is trading above its 50-day and 100-day moving averages of $16.95 and $17.05, respectively.
KMI’s outlook is reflected in the POWR Ratings system. It has a B grade for Momentum. Within the Energy – Oil & Gas industry, it is ranked #48.
To see the KMI’s other ratings for Growth, Value, Stability, Sentiment, and Quality, click here.
PBF Energy Inc. (PBF)
PBF refines and supplies petroleum products. The company operates in two segments, Refining and Logistics. It produces gasoline, ultra-low-sulfur diesel, heating oil, diesel fuel, jet fuel, lubricants, petrochemicals, asphalt, unbranded transportation fuels, and other petroleum products.
On June 28, Eni Sustainable Mobility Spa and PBF closed the 50-50 joint venture partnership in St. Bernard Renewables LLC (SBR), an operating biorefinery co-located with PBF's Chalmette Refinery in Louisiana. The strategic partnership should leverage the experience and expertise of Eni Sustainable Mobility and PBF.
PBF’s President Matthew Lucey said, "Closing this strategic partnership with Eni Sustainable Mobility, demonstrates our commitment to delivering diversified sources of energy to our customers, while lowering the carbon intensity of the products we manufacture."
On May 31, PBF paid its shareholders a quarterly dividend of $0.20 per share of Class A common stock. This reflects the cash generation abilities of the company. It pays an annual dividend of $0.60 per share, which translates to a 1.30% yield on the current market prices. The company has a four-year average dividend yield of 2.97%.
PBF’s forward non-GAAP P/E of 5.20x is 49.4% lower than the 10.28x industry average. Likewise, its forward EV/Sales multiple of 0.17 is 91.9% lower than the 2.13x industry average.
PBF’s trailing-12-month levered FCF margin of 6.04% is 2.3% higher than the 5.91% industry average. Its trailing-12-month asset turnover ratio of 3.60x is 457.2% higher than the industry average of 0.65x.
PBF’s revenues came in at $9.30 billion for the fiscal first quarter that ended March 31, 2023, representing a 1.7% year-over-year growth. Its income from operations rose 485.1% from the prior-year quarter to $532.40 million. Its adjusted EBITDA grew 145.2% year-over-year to $665.40 million.
PBF’s adjusted fully-converted net income (excluding special items) came in at $371.40 million and $2.76 per share, representing an increase of 757.7% and 688.6% year-over-year, respectively. PBF’s total current liabilities, as of March 31, 2023, stood at $4.60 billion, compared to $5.20 billion as of December 31, 2022.
Analysts expect PBF’s revenue and EPS for the fiscal third quarter ending September 2023 to be $9.60 billion and $2.82, respectively. It has surpassed the consensus revenue estimates in each of the trailing four quarters.
PBF has gained 46.7% over the past year to close its last trading session at $46.01. Over the past three months, it has gained 33.8%. Currently, the stock is trading above its 50-day and 100-day moving averages of $40.02 and $39.73, respectively.
PBF’s POWR Ratings reflect its mixed outlook. It has an A grade for Value and a B for Quality. It is ranked #25 within the same industry.
Click here to access PBF’s additional POWR Ratings for Growth, Momentum, Stability, and Sentiment.
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CVX shares were trading at $158.50 per share on Friday morning, down $1.16 (-0.73%). Year-to-date, CVX has declined -10.04%, versus a 20.22% 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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