Despite an expected slowdown in economic growth in almost all major economies, IEA raised the oil demand forecast for 2023 and next year. In line with these projections, OPEC also made a slight increase to its 2023 demand growth forecast and stuck to its relatively high prediction for 2024.
Robust oil demand and tight supplies could drive prices higher, creating significant tailwinds for the energy industry. Hence, quality energy stocks Repsol, S.A. (REPYY), CrossAmerica Partners LP (CAPL), and Geospace Technologies Corporation (GEOS) could be ideal buys this month for substantial returns.
In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) said oil market fundamentals remained solid and blamed speculators for a drop in prices. Also, the oil producer group made a slight upward revision to its 2023 forecast for global oil demand growth and stuck to its relatively high 2024 prediction.
OPEC raised its oil demand forecast to 2.5 million barrels a day (bpd) this year, an increase of 100,000 bpd from last month’s report. For 2024, world oil demand is expected to rise by 2.25 million bpd. Also, the report stated that China’s crude oil imports remained healthy and Asian refining margins stayed strong.
WTI crude futures surged to nearly $78.5 per barrel on Tuesday, increasing for the fourth consecutive session after the OPEC hinted at oil market fundamentals remaining strong.
In line with OPEC’s projections, the International Energy Agency (IEA) increased its oil demand growth forecasts for 2023 and next year. The agency lifted its 2023 growth forecast to 2.4 million bpd from 2.3 million bpd. It also raised the forecast for the next year to 930,000 bpd from 880,000 bpd.
Meanwhile, the U.S. Energy Department plans to buy around 1.2 million barrels of oil to help replenish the Strategic Petroleum Reserve after selling record volumes from the stockpile in 2022, which could further fuel demand.
A U.S. crackdown on Russian oil exports could also disrupt supply, driving oil prices further. The U.S. Treasury Department recently sent notices to ship management companies asking for information regarding 100 vessels it suspects of violating Western sanctions on Russian oil.
Investors’ interest in energy stocks is evident from iShares Global Energy ETF’s (IXC) 6.3% returns over the past six months.
Given the industry’s promising prospects, investing in quality energy stocks REPYY, CAPL, and GEOS could be wise this week.
Let’s discuss the fundamentals of these stocks in detail:
Repsol, S.A. (REPYY)
Headquartered in Madrid, Spain, REPYY is an integrated energy company globally. It operates through Upstream; Industrial; and Commercial and Renewables segments. The company engages in refining activities and petrochemicals business; the trading and transportation of crude oil and oil products; and the sale and transportation of natural gas and LNG.
In October, REPYY completed the purchase of an additional 6.75% stake in the Reggane Nord asset in Algeria. The operation is part of the European strategy of searching for opportunities to boost its participation in gas supplies to Europe.
On September 7, REPYY announced an agreement to acquire the renewable energy platform ConnectGen, with a 20,000 MW pipeline and development capabilities, for $768 million from Quantum Capital Group, a provider of capital to the global energy and energy transition industries. This strategic acquisition should benefit the company significantly.
Over the past three years, REPYY revenue and EBITDA grew at 21.6% and 62.6% CAGRs, respectively. Its total assets increased at a CAGR of 5.9% over the same timeframe, and its levered free cash flow improved at a 28.3% CAGR.
REPYY reported sales of €17.71 billion ($16.57 billion) for the third quarter that ended September 2023. Its operating net income grew 26.9% year-over-year to €1.88 billion ($2.01 billion). The company’s net income before tax came in at €1.91 billion ($2.04 billion), an increase of 25.7% from the prior year’s quarter.
In addition, the company’s net income and earnings per share attributable to the parent were €1.38 billion ($1.48 billion) and €1.07, up 101.3% and 127.7% year-over-year, respectively.
Shares of REPYY have gained 2.4% over the past six months and 4.5% over the past year to close the last trading session at $14.79.
REPYY’s POWR Ratings reflect this solid outlook. The stock has an overall rating of A, translating to Strong Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Growth, Value, Stability, and Sentiment. Within the A-rated Foreign Oil & Gas industry, REPYY is ranked #3 out of 44 stocks.
To access the additional REPYY’s ratings (Quality), click here.
CrossAmerica Partners LP (CAPL)
CAPL is involved in the wholesale distribution of motor fuels, operation of convenience stores, and ownership and leasing of real estate used in the retail distribution of motor fuels. The company operates through two segments: Wholesale and Retail.
On October 23, CAPL’s Board of Directors declared a quarterly distribution of $0.5250 per unit attributable to the third quarter of fiscal 2023. The distribution attributable to the third quarter was paid on November 10, 2023, to all unitholders of record on November 3, 2023.
CAPL’s annual dividend of $2.10 translates to a 9.58% yield on the current price level. Also, its four-year average dividend yield of 11.56%.
CAPL’s revenue and EBITDA grew at 33.2% and 16.5% CAGRs, respectively, over the past three years. Its EBIT increased at a CAGR of 23.1% over the same period, while its normalized net income improved at a 7.3% CAGR. In addition, the company’s levered free cash flow grew at a CAGR of 64.3%.
CAPL reported operating revenues of $1.21 billion during the third quarter that ended September 30, 2023. Its adjusted EBITDA and distributable cash flow came in at $44.21 million and $31.39 million, respectively. The company posted a net income of $12.30 million for the quarter.
Also, as of September 30, 2023, the company’s total assets stood at $123.26 million, compared to $118.41 million as of December 31, 2022.
Analysts expect CAPL’s revenue and EPS for the fiscal year (ending December 2024) to grow 6.2% and 11.8% year-over-year to $4.76 billion and $0.95. Moreover, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
CAPL’s stock has gained 15.6% over the past six months and 10.8% over the past year to close the last trading session at $22.33. Also, the stock climbed 13.7% year-to-date.
CAPL’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
CAPL has an A grade for Sentiment and a B for Stability and Growth. It tops the list of 26 stocks in the A-rated MLPs - Oil & Gas industry.
Beyond what we’ve stated above, we have also rated the stock for Quality, Value, and Momentum. Get all ratings of CAPL here.
Geospace Technologies Corporation (GEOS)
GEOS designs and manufactures instruments and equipment used in the oil and gas industry to acquire seismic data to locate, characterize, and monitor hydrocarbon-producing reservoirs. The company operates through three segments: Oil & Gas Markets; Adjacent Markets; and Emerging Markets.
On August 30, GEOS announced a $5.70 million contract with an international contractor to deliver a considerable number of specialized geophones designed for vibration monitoring in rugged environments. The geophones will be produced in the company’s manufacturing facilities, with deliveries anticipated to start in January 2024.
Long-term relationships with repeat customers reflect solid demand for GEOS’ quality geophone products.
On August 28, GEOS introduced a new seismic acquisition product, Aquanaut™, a continuous, cable-free, four-channel autonomous, deepwater ocean bottom recorder. Aquanaut is the next-gen node designed for extended duration ocean bottom seismic data acquisition and features low-frequency geophones. This new product launch might drive the company’s growth.
Also, in the same month, the company announced a $3 million rental contract with Walker Marine Geophysical, a high-resolution land and marine seismographic surveyor provider that will rent 3,000 new products, Mariner®, shallow water seabed wireless seismic data acquisition nodes. The delivery of Mariners is expected to occur in GEOS’ third quarter of 2024.
GEOS’ revenue increased at a CAGR of 8.3% over the past three years. Also, the company’s EBITDA grew at a CAGR of 19.6% over the same period.
For the third quarter that ended June 30, 2023, GEOS’ revenue increased 58.1% year-over-year to $32.72 million. Its gross profit rose 282.9% from the year-ago value to $13.98 million. The company’s income from operations was $3.15 million, compared to a loss from operations of $6.53 million in the previous year’s quarter.
Furthermore, the company’s net income came in at $3.23 million, or $0.24 per common share, compared to the net loss of $6.57 million, or $0.51 per common share a year ago, respectively.
The stock has gained 43.4% over the six months and 198.5% year-to-date to close its last trading session at $12. In addition, it surged 152.6% over the past year.
GEOS’ POWR Ratings reflect its strong prospects. The stock has an overall B rating, translating to Buy in our proprietary rating system.
The stock has an A for Growth and a B for Momentum and Quality. GEOS is ranked #4 of 49 stocks in the Energy - Services industry.
Click here for additional POWR Ratings for Value, Sentiment, and Stability for GEOS.
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REPYY shares were trading at $14.90 per share on Tuesday morning, up $0.11 (+0.74%). Year-to-date, REPYY has declined -2.72%, versus a 18.14% 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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