Elevated oil prices and growing energy demand will likely drive sustained oil and gas production growth, creating a solid opportunity for companies providing energy services. Hence, it could be wise to invest in fundamentally sound energy stocks MRC Global (MRC), Ranger Energy (RNGR), and Geospace Technologies (GEOS) with immense growth potential. Keep reading….
Driven by surging crude oil prices and robust energy demand worldwide, domestic oil and natural gas production will experience continued growth this year, boosting the demand for energy services from oil & gas production and exploration companies.
Despite fears of slowing economies, OPEC left its demand forecast for 2023 and 2024 unchanged. Its forecast suggests that global oil demand will rise by 2.44 million barrels per day (bpd) in 2023 and by 2.25 million bpd next year. Developing economies, led by China, will account for most of this year’s demand growth, OPEC said in its Monthly Oil Market Report (MOMR).
Moreover, OPEC raised its medium- and long-term forecasts for global oil demand. In its 2023 World Oil Outlook, it projects global demand for oil to reach 116 million bpd by 2045, an increase from 99.6 million bpd in 2022 and nearly 6 million more bpd than it forecasted in last year’s report.
In the medium term, the group expects global oil demand to reach 110.2 million bpd by 2028, up 10.6 million bpd compared to 2022.
The U.S. Energy Information Administration (EIA) said in its Short-Term Energy Outlook (STEO) that U.S. natural gas output and demand will grow to record highs this year. EIA forecasts dry gas production to rise to 103.72 billion cubic feet per day (bcfd) in 2023 and 105.13 bcfd next year from a record 99.60 bcfd in 2022.
Also, the agency projects domestic gas consumption to increase from a record 88.46 bcfd last year to 89.17 bcfd in 2023.
Amid growing demand for oil and gas and escalating supply constraints due to the conflict between Israel and Hamas and extended output cuts by OPEC+ and Russia, oil prices will likely remain elevated. Historically, when crude oil prices increase, demand for energy services from oil & gas production and exploration companies surges owing to increased production.
Wood Mackenzie states oil and gas exploration spending will recover from historic lows to an average of $22 billion a year over the next five years. He expects exploration spending to rise by 6.8% this year over 2022 levels.
Attractive economics, enhanced emphasis on energy security and the discovery of new resources are expected to incentivize NOCs (national oil companies) and other energy majors to boost exploration activity.
According to a report by Consegic Business Intelligence, the global oilfield services market is expected to reach $468.58 billion by 2023, growing at a CAGR of 5.9%. The increasing adoption of oilfield services for drilling is boosting the market’s growth.
Further, several technological advancements in the oil and gas industry led to the development of efficient and cost-effective drilling, exploration, and production techniques, driving the demand for specialized oilfield services.
Considering these favorable trends, let’s look at the fundamentals of the three best Energy – Services stocks, beginning with number 3.
Stock #3: MRC Global Inc. (MRC)
MRC distributes pipes, valves, fittings, and other infrastructure products and services to energy, industrial, and gas utility end-markets internationally. The company provides ball, butterfly, globe, check, needle, and plug valves; valve modification services; carbon steel fittings and flanges; natural gas distribution products; and oilfield and industrial supplies and equipment.
On September 27, MRC announced that its subsidiary, MRC Global (US) Inc., extended its Enterprise Framework Agreement with Shell plc. (SHEL) until 2028. Under this global agreement, MRC Global would remain a key supplier of SHEL’s pipe, valves, and fittings; and ad-hoc valve actuation services for its upstream, midstream, and downstream assets.
Over the past three years, MRC’s revenue and EBITDA have increased at CAGRs of 4.4% and 37.4%, respectively. The company’s normalized net income has grown at a CAGR of 321.7% over the same timeframe.
For the second quarter that ended June 30, 2023, MRC’s sales increased 2.7% year-over-year to $871 million, and its gross profit grew 15.9% from the year-ago value to $175 million. The company’s operating income rose 45.2% from the prior year’s quarter to $45 million.
Furthermore, the company’s net income attributable to common stockholders and earnings per common share were $18 million and $0.21, up 125% and 133.3% year-over-year, respectively.
Street expects MRC’s revenue for the first quarter (ending March 2024) to increase 2.7% year-over-year to $908.77 million. The consensus EPS estimate of $0.36 for the same period indicates an improvement of 11.5% year-over-year. Moreover, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
For the fiscal year ending December 2024, the company’s revenue and EPS are expected to grow 4.7% and 19% year-over-year to $3.76 billion and $1.40, respectively.
Shares of MRC have gained 17.2% over the past six months and 20.4% over the past year to close the last trading session at $10.92.
MRC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Momentum and a B for Growth and Value. It has ranked #12 out of 48 stocks in the Energy – Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MRC’s ratings for Sentiment, Quality, and Stability here.
Stock #2: 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 Oil & Gas Markets; Adjacent Markets; and Emerging Markets segments.
On August 28, GEOS launched 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 offering should bode well for the company.
On August 15, GEOS 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 fiscal year 2024.
GEOS’ revenue has grown at a CAGR of 8.3% over the past three years. Also, the stock’s EBITDA has increased at a CAGR of 19.6% over the same period.
In the third quarter that ended June 30, 2023, GEOS’ total revenue increased 58.1% year-over-year to $32.72 million, and its gross profit grew 282.9% year-over-year to $13.98 million. Its income from operations stood at $3.15 million, compared to a loss from operations of $6.53 million in the prior year’s quarter.
In addition, the company’s net income and income per common share came in at $3.23 million and $0.24, compared to the net loss and loss per common share of $6.57 million and $0.51, respectively, in the same quarter of 2022.
GEOS’ stock has gained 63.1% over the six months and 229.1% year-to-date to close its last trading session at $13.23.
GEOS’ POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system.
The stock has an A for Momentum and a B for Growth and Quality. It is ranked #7 of 48 stocks in the Energy – Services industry.
Click here for additional POWR Ratings for Value, Sentiment, and Stability for GEOS.
Stock #1: Ranger Energy Services, Inc. (RNGR)
RNGR offers onshore high-specification well-service rigs, wireline completion services, and complementary services to exploration and production companies. The company operates through three segments: High Specification Rigs; Wireline Services; and Processing Solutions and Ancillary Services.
On May 31, RNGR announced a new asset-based lending facility (ABL) with Wells Fargo Bank, N.A., as the administrative agent and sole lender. The facility includes $75 million of committed liquidity and features an accordion allowing for potential expansion of up to $150 million to support future growth opportunities.
Under the terms of the agreement, the ABL will have a duration of five years, providing RNGR with enhanced financial flexibility and support for its strategic initiatives.
Over the past three years, RNGR’s revenue and EBITDA have grown at CAGRs of 33.2% and 30.9%, respectively. Also, the stock’s total assets have increased at a CAGR of 13.7% over the same timeframe.
RNGR’s total revenue increased 6.3% year-over-year to $163.20 million for the second quarter that ended June 30, 2023. Its operating income was $11.40 million, compared to an operating loss of $2.20 million in the prior year’s period. Its adjusted EBITDA rose 21.7% year-over-year to $21.90 million.
Additionally, the company’s net income and income per common share came in at $6.10 million and $0.24, compared to a net loss and loss per common share of $0.40 million and $0.02 in the prior year’s quarter.
Analysts expect RNGR’s revenue and EPS for the fiscal year (ending December 2023) to increase 7.7% and 51.7% year-over-year to $655.35 million and $1.47, respectively. Similarly, the company’s revenue and EPS for the fiscal year 2024 are expected to grow 6.2% and 14.9% from the prior year to $696.10 million and $1.69, respectively.
The stock has gained 20.1% over the past six months and 50.1% over the past year to close the last trading session at $13.99.
RNGR’s promising prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
RNGR has an A grade for Momentum and a B for Growth and Value. It is ranked #4 within the same industry.
To access the additional RNGR ratings (Sentiment, Quality, and Stability), click here.
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MRC shares were unchanged in premarket trading Wednesday. Year-to-date, MRC has declined -5.70%, versus a 15.28% 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.