Rising crude oil prices, with surging demand and constrained supply, are expected to boost the prospects of the energy industry. Therefore, it could be wise to buy fundamentally strong energy stocks Halliburton (HAL), Matrix Service Company (MTRX), and ChampionX (CHX). Read more….
Crude oil prices have been rising lately amid production cuts by major oil-producing nations. On the other hand, the energy demand is increasing consistently. These factors are expected to drive the demand for energy services.
Amid this backdrop, it could be wise to buy fundamentally strong energy stocks Halliburton Company (HAL), Matrix Service Company (MTRX), and ChampionX Corporation (CHX), given their massive potential for gains.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the energy services sector is well-positioned to grow.
Crude oil prices had climbed above $100 per barrel last year due to worries over the lack of supply caused by the war between Ukraine and Russia. Prices have risen lately after cooling during the early part of the year, crossing $90 a barrel for the first time since November 2022. Surging demand primarily led to the price increase. Global oil demand rose by 3.26 million barrels per day during the second quarter of 2023 to reach 103 mb/d.
While crude oil prices are now trading below $90, tighter oil supplies by the end of this year due to supply cuts by OPEC+ and Russia could push crude oil prices above $90 again. Moreover, the conflict between Israel and Hamas poses a risk of the dispute spilling over to neighboring oil-producing nations like Saudi Arabia, which could further drive oil prices higher.
Exploration and production (E&P) companies increased their capital expenditure during the second quarter. This and rising energy activity could boost the demand for energy services. JP Morgan believes Brent oil prices, a benchmark for international crude oil prices, will likely touch $150 per barrel due to robust demand and diminishing supplies.
Global electricity demand is forecasted to grow between 62% and 185% by 2050 when compared to 2021 levels. The EIA estimates that U.S. power generation from renewables will rise from 21% in 2021 to 44% in 2050. However, oil is expected to remain the largest energy source, just ahead of renewables.
With the dependence on oil unlikely to stutter anytime soon, energy companies offering services related to oil and gas drilling, evaluation, production, maintenance, etc., will likely perform well. The global oilfield services market industry is projected to reach $421.31 billion by 2030, growing at a CAGR of 5.6%.
In light of these encouraging trends, let’s look at the fundamentals of the three promising Energy – Services stocks, beginning with number 3.
Stock #3: Halliburton Company (HAL)
HAL provides products and services to the energy industry worldwide. It operates in two segments: Completion and Production and Drilling and Evaluation.
On June 12, 2023, HAL announced that it was awarded a contract to provide completions, liners, and monitoring products and services for the carbon capture and storage (CCS) system within the HyNet North West project in Liverpool Bay (U.K.).
“Halliburton is excited to develop and deliver innovative well completions and monitoring solutions for this groundbreaking CCS project,” said Jean Marc Lopez, Europe, Eurasia and Sub-Saharan African (EESSA) Region VP. “This project provides a great opportunity to expand our completions activity and showcase Halliburton’s leadership in CCS projects. We look forward to providing our services to support the HyNet project.”
HAL’s revenue has grown at a 5.7% CAGR over the past three years. Its EBITDA has grown at a 23.1% CAGR over the past three years. Its total assets and EBIT have grown at 4.5% and 45.8% CAGRs over the same period.
HAL’s total revenue for the second quarter ended June 30, 2023, increased 14.3% year-over-year to $5.80 billion. Its adjusted operating income rose 40.8% over the prior-year quarter to $1.01 billion. The company’s adjusted net income attributable to the company increased 56.3% year-over-year to $691 million. Also, its adjusted net income per share came in at $0.77, representing an increase of 57.1% year-over-year.
Analysts expect HAL’s EPS and revenue for the quarter ended September 30, 2023, to increase 28.2% and 9.3% year-over-year to $0.77 and $5.86 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 40.9% to close the last trading session at $41.64.
HAL’s POWR Ratings reflect solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #16 out of 48 stocks in the Energy – Services industry. It has an A grade for Momentum and a B for Growth and Sentiment. Click here to see the other ratings of HAL for Value, Stability, and Quality.
Stock #2: Matrix Service Company (MTRX)
MTRX offers engineering, fabrication, construction, and maintenance services to support critical energy infrastructure and industrial markets internationally. The company operates through three segments: Utility and Power Infrastructure; Process and Industrial Facilities; and Storage and Terminal Solutions.
On May 9, 2023, MTRX announced that its subsidiary Matrix PDM Engineering signed an exclusive Memorandum of Understanding with Tissot Industrie, allowing each to offer total Engineering, Procurement, and Construction (EPC) solutions for liquid hydrogen storage across the United Kingdom, Norway, Switzerland, and the European Union.
MTRX’s President and CEO John R. Hewitt said, “We are excited about the significant role Matrix, together with Tissot, will play in building out the infrastructure needed to meet an enormous global demand for hydrogen.”
“This partnership marries Matrix PDM’s unrivaled expertise in cryogenic engineering and technologies with Tissot’s world-class international construction expertise to provide complete solutions for customers across Europe that are seeking storage and terminal solutions to support their hydrogen ambitions,” he added.
MTRX’s levered FCF has grown at a 74.4% CAGR over the past three years.
For the fiscal fourth quarter ended June 30, 2023, MTRX’s revenue increased 2.6% year-over-year to $205.85 million. Its gross profit rose significantly year-over-year to $14.70 million. The company’s adjusted EBITDA came in at $2.28 million, compared to an adjusted EBITDA loss of $11.96 million in the prior year quarter.
Its adjusted net loss narrowed 78% year-over-year to $3.05 million. Also, its adjusted loss per share narrowed 78.8% year-over-year to $0.11.
For the quarter ended September 30, 2023, MTRX’s revenue is expected to increase 7.1% year-over-year to $213.73 million. Its EPS for the quarter ending December 31, 2023, is expected to increase 101.9% year-over-year to $0.01. Over the past year, the stock has gained 202% to close the last trading session at $12.11.
MTRX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system.
It is ranked #12 in the same industry. It has an A grade for Sentiment and a B for Growth and Momentum. To see the other ratings of MTRX for Value, Stability, and Quality, click here.
Stock #1: ChampionX Corporation (CHX)
CHX provides chemistry solutions, engineered equipment, and technologies to oil and gas companies worldwide. The company operates through four segments: Production Chemical Technologies, Production & Automation Technologies, Drilling Technologies, and Reservoir Chemical Technologies.
CHX’s revenue has grown at a 53% CAGR over the past three years. Its EBITDA has grown at a 92.1% CAGR over the past three years. Its Tang Book Value has grown at 19.1% CAGR over the same period.
CHX’s revenue for the second quarter ended June 30, 2023, came in at $926.60 million. Its gross profit increased 33.2% over the prior-year quarter to $282.21 million. The company’s adjusted EBITDA rose 34.7% year-over-year to $186.24 million.
Its adjusted net income attributable to CHX increased 67% over the year-ago quarter to $99.06 million. Also, its adjusted EPS attributable to CHX came in at $0.49, representing an increase of 75% year-over-year.
Street expects CHX’s EPS for the quarter ending September 30, 2023, to increase 49.4% year-over-year to $0.49. Its revenue for the quarter ending December 31, 2023, to increase 2.4% year-over-year to $1.01 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 65.9% to close the last trading session at $34.33.
CHX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
Within the Energy – Services industry, it is ranked #8. It has an A grade for Momentum and a B for Growth and Quality. Click here to see the other ratings of CHX for Value, Stability, and Sentiment.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
HAL shares were trading at $42.01 per share on Thursday morning, up $0.37 (+0.89%). Year-to-date, HAL has gained 8.21%, versus a 15.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.