Given projections of rising demand and supply constraints, the oil and gas industry is poised to exhibit significant resilience, supported by a steady uptick in oil prices this year. Therefore, investors could add quality energy stocks Halliburton Company (HAL), Ultrapar Participações S.A. (UGP), and MRC Global Inc. (MRC) to their portfolio now.
Despite the transition to renewable energy sources, traditional energy sources such as oil and gas are projected to maintain robust demand in future years due to escalating energy demands spurred by the growing population, rapid industrialization, and other factors.
According to the Energy Information Association's (EIA) Short-Term Energy Outlook, the demand is forecasted to increase to a record high in 2024, even while natural gas production within the U.S. may potentially decline. Concurrently, U.S. liquefied natural gas exports are predicted to scale up to 12.34 billion cubic feet per day (bcfd) in 2024 before increasing further to 14.43 bcfd in 2025.
Meanwhile, oil prices continue progressing upward, fueled by mounting apprehension over a potentially precarious global fuel supply landscape. Factors triggering this include Ukrainian drone attacks disrupting Russian refining activity and the extension of the OPEC+ oil production cut. Deutsche Bank analysts project Brent crude prices to reach $88 per barrel by the end of 2024.
In light of these encouraging trends, let's look at the fundamentals of the three energy stocks.
Halliburton Company (HAL)
HAL provides products and services to the energy industry worldwide. It operates through two segments: Completion and Production and Drilling and Evaluation.
HAL generated about $2.30 billion of free cash flow during the year and returned $1.40 billion of cash to shareholders through stock repurchases and dividends, representing over 60% of free cash flow.
During the fourth quarter of 2023, HAL used cash on hand to repurchase approximately $250 million of common stock and approximately $150 million of debt across multiple senior notes, notes due, and global debentures.
HAL's board of directors declared a 2024 first quarter dividend of $0.17 per share on the company’s common stock, payable to shareholders on March 27. HAL pays an annual dividend of $0.68 per share, which translates to a dividend yield of 1.77% on the current share price.
Its four-year average yield is 1.88%. HAL’s dividend payments have grown at a 53.4% CAGR over the past three years.
HAL’s trailing-12-month cash from operations of $3.46 billion is 408.3% higher than the industry average of $680.31 million. Its trailing-12-month ROCE, ROTC, and ROTA of 30.43%, 14.39%, and 10.69% are 71%, 73%, and 64.6% higher than the industry averages of 17.80%, 8.32%, and 6.50%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, HAL’s total revenue and total operating income stood at $5.74 billion and $1.06 billion, up 2.8% and 8.4% year-over-year, respectively.
For the same quarter, its adjusted net income attributable to company and adjusted net income per share increased 17.2% and 19.4% from the year-ago quarter to $769 million and $0.86, respectively.
Street expects HAL’s revenue for the fiscal first quarter ending March 2024 to increase marginally year-over-year to $5.69 billion, while its EPS is expected to increase 3.5% year-over-year to $0.75. The company surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 24.5% over the past year to close the last trading session at $38.22. Over the past nine months, it has gained 21.4%.
HAL’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Momentum. Within the Energy - Services industry, it is ranked #14 out of 50 stocks.
To see additional POWR Ratings for Growth, Value, Stability, Sentiment, and Quality for HAL, click here.
Ultrapar Participações S.A. (UGP)
Headquartered in São Paulo, Brazil, UGP operates in the energy and infrastructure business. It operates in five segments: Gas distribution (Ultragaz); Fuel distribution (Ipiranga); Chemicals (Oxiteno); Storage (Ultracargo); and Drugstores (Extrafarma).
UGP pays an annual dividend of $0.16 per share, which translates to a dividend yield of 2.82% on the current share price. Its four-year average yield is 2.95%. UGP’s dividend payments have grown at an 18.7% CAGR over the past three years.
UGP’s trailing-12-month cash per share of $1.12 is 13.4% higher than the industry average of $0.99. Similarly, its trailing-12-month asset turnover ratio of 3.38x is 547.9% higher than the industry average of 0.52x.
For the fiscal fourth quarter that ended December 31, 2023, UGP’s net revenues from sales and services stood at R$33.42 billion ($6.67 billion), while gross profit increased 25.2% year-over-year to R$3.07 billion ($612.13 million).
For the same quarter, its net income attributable to shareholders of UGP and earnings per share stood at R$1.10 billion ($219.20 million) and R$1, up 33.6% and 33.3% from the prior-year quarter, respectively. Moreover, its adjusted EBITDA stood at R$2.29 billion ($456.22 million), up 24.8% from the year-ago quarter.
Street expects UGP’s revenue and EPS for the fiscal year ending December 2024 to increase 6.7% and 19.3% year-over-year to $27.06 billion and $0.43, respectively. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 132.5% over the past year to close the last trading session at $5.79. Over the past nine months, it has gained 55.7%.
UGP’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
UGP has an A grade for Growth and a B for Value, Stability, and Sentiment. Within the A-rated Foreign Oil & Gas industry, it is ranked first out of 40 stocks.
Beyond what we’ve stated above, we have also rated the stock for Momentum and Quality. Get all ratings of UGP here.
MRC Global Inc. (MRC)
MRC distributes pipes, valves, fittings, and other infrastructure products and services in the U.S., Canada, and internationally.
MRC’s trailing-12-month asset turnover ratio of 1.80x is 127.6% higher than the industry average of 0.79x. Its trailing-12-month ROCE, ROTC, and ROTA of 20.59%, 8.78%, and 6.04% are 70.1%, 26.9%, and 25.9% higher than the industry averages of 12.11%, 6.92%, and 4.80%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, MRC’s sales and adjusted gross profit stood at $768 million and $168 million, respectively. Moreover, its adjusted EBITDA stood at $48 million.
For the same quarter, its adjusted net income attributable to common stockholders and adjusted net income attributable to common stockholders per share stood at $20 million and $0.23, respectively.
Street expects MRC’s revenue and EPS for the fiscal first quarter ending March 2024 to be $760.64 million and $0.15, respectively.
The stock has gained 41.4% over the past year to close the last trading session at $12.56. Over the past nine months, it has gained 26%.
MRC’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
MRC has an A grade for Value and a B for Momentum and Sentiment. Within the Energy - Services industry, it is ranked #7.
Click here for the additional POWR Ratings for MRC (Growth, Stability, and Quality).
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HAL shares were unchanged in premarket trading Thursday. Year-to-date, HAL has gained 6.24%, versus a 9.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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