Expectations of higher global demand and constrained supplies amid extended voluntary cuts by Saudi and Russia will likely put upward pressure on oil and gas prices, providing solid tailwinds for the energy sector. Hence, let’s take a look at quality energy stocks Exxon Mobil (XOM), Shell (SHEL), and Baker Hughes (BKR) with solid momentum attributes. Continue reading….
Growing demand worldwide, accompanied with OPEC+ output cuts expected to keep supplies tight will likely drive oil and gas prices higher, positioning the energy sector for significant growth this year. Thus, robust energy stocks Exxon Mobil Corporation (XOM), Shell plc (SHEL), and Baker Hughes Company (BKR), witnessing strong momentum, could be ideal watchlist additions.
Before delving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the energy sector’s outlook.
Saudi Arabia and Russia, the world’s biggest crude exporters, announced to extend output cuts by at least another three months. According to the state-owned Saudi Press Agency, Saudi extended its 1 million barrel per day (mb/d) voluntary oil production cut until the end of the year. Riyadh first applied for the 1 mb/d reduction in July and has since extended it on a monthly basis.
This output cut adds to 1.66 mb/d of other voluntary crude output cuts that some members of OPEC have placed until the end of 2024. Also, fellow heavyweight oil producer Russia announced to extend its 300,000 barrels per day reduction of exports until the end of this year and will review the measure on a monthly basis.
Earlier, Moscow pledged to voluntarily reduce exports by 500,000 barrels per day in August and by 300,000 barrels per day in September. These moves by Saudi and Russia reinforce efforts made by OPEC+ with the aim of supporting the stability and balance of oil markets.
On the other hand, as per the latest IEA Oil Market Report (OMR), global oil demand is surging to record highs, driven by solid summer air travel, increased oil use in power generation, and rising Chinese petrochemical activity. World oil demand is expected to grow by 2.2 mb/d year-over-year to 102.2 mb/d in 2023, with China accounting for more than 70% of the increase.
Production cuts combined with growing demand, will cause oil inventories to fall and put upward pressure on oil and gas prices. The dual announcements from Riyadh and Moscow pushed benchmark Brent crude above $90 per barrel in trading Tuesday afternoon, a price not seen in the market since last November.
Further, Livia Gallarati, Senior Oil Markets Analyst, Energy Aspects, expects Brent prices to be in $90-100 range in the upcoming month. In the same line, Cole Smead, president and portfolio manager at Smead Capital Management, told BBN Bloomberg that crude oil prices could be on track to hit $100 and even $120 a barrel, which calls for aggressive buying moves into the oil market.
Also, according to U.S. Energy Information Administration (EIA) forecast, the Brent price could average $86 per barrel in the second half of 2023 and reach $88 a barrel in November and December this year. The Brent price in its forecast averages $86 a barrel for 2024.
With these favorable trends in mind, let’s delve into the fundamentals of the three Energy – Oil & Gas stock picks with solid momentum attributes, beginning with the third choice.
Stock #3: Exxon Mobil Corporation (XOM)
XOM explores and produces crude oil and natural gas internationally. The company operates in four segments: Upstream; Energy Products; Chemical Products; and Specialty Products. Also, it is engaged in the manufacture, trade, transport, and sale of petroleum products, petrochemicals, and other specialty products; and pursuit lower-emission business opportunities.
On July 13, XOM announced the acquisition of Denbury Inc. (DEN), an experienced developer of carbon capture, utilization, and storage (CCS) solutions, and enhanced oil recovery. This acquisition is expected to drive solid growth and returns for XOM and provides the company with the largest CO2 pipeline network in the U.S. spanning 1,300 miles.
On June 1, XOM and Nucor Corporation, one of North America’s largest steel producers, entered into a long-term commercial agreement in which ExxonMobil will capture, transport, and store up to 800,000 metric tons of CO2 per year from Nucor’s steel manufacturing site in Covent, Louisiana. The project is expected to begin in 2026.
The agreement with Nucor is the third Carbon Capture and Storage (CCS) agreement announced in the past twelve months and brings the total contracted CO2 to transport and store for third-party customers to 5 million metric tons per year.
On March 16, XOM announced the successful startup of its Beaumont refinery expansion, which will add 250,000 bpd capacity to a major Gulf Coast refining and petrochemical complex. This development would empower XOM to accommodate the growing demand for transportation fuels, providing the company with a competitive edge.
For the second quarter that ended June 30, 2023, XOM’s total revenues and other income decreased 28.3% year-over-year to $82.91 billion and net income attributable to ExxonMobil was $7.88 billion, down 55.9% year-over-year. However, cash inflow from operations totaled $9.40 billion and free cash flow was $5 billion, which includes a net working capital impact of $3.6 billion.
Analysts expect XOM’s revenue and EPS for the fiscal year (ending December 2023) to decline 15.8% and 35% year-over-year to $348.24 billion and $9.14, respectively. However, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of XOM have gained 7.1% over the past month and 20.6% over the past year to close the last trading session at $114.51. Moreover, the stock is trading above its 50-day and 200-day moving averages of $107 and $109.02, respectively, indicating an uptrend.
XOM’s mixed fundamentals are apparent in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
XOM has an A grade for Momentum and Quality. Also, it has a C grade for Sentiment. It has ranked #38 out of 87 stocks in the Energy – Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see XOM’s ratings for Value, Growth, and Stability here.
Stock #2: Baker Hughes Company (BKR)
BKR offers a portfolio of technologies and services to energy and industrial value chain globally. The company operates through the Oilfield Services & Equipment (OFSE) and Industrial & Energy Technology (IET) segments.
On September 5, BKR and Venture Global announced an expanded master equipment supply agreement to support Venture Global’s long-term expansion plan. BKR, as a strategic LNG equipment supplier to Venture Global, provided comprehensive LNG technology solutions to the Calcasieu Pass LNG facilities, and will offer the same to the under-construction Plaquemines LNG facility.
This continued partnership with Venture Global is expected to boost BKR’s revenue stream and expansion.
On August 8, BKR announced a memorandum of understanding (MoU) with airport management and operations company Avports to develop, implement, and operate on-site microgrid solutions for the airport industry. This collaboration addresses emissions reduction and the industry’s goal to focus on zero-emission building, horizontal airport infrastructure, and aircraft systems.
On July 27, BKR’s Board of Directors declared an increased quarterly cash dividend of $0.20 per share of Class A common stock paid on August 18, 2023, to stockholders of record on August 8, 2023.
In line with the company’s stated goal to consistently grow the dividend over time, the dividend increase reflects a 5.3% growth rate or $0.01 from the prior quarter’s dividend and an 11.1% increase or $0.02 compared to the same quarter of 2022. BKR expects to fund its quarterly cash dividend from cash generated from operations.
During the second quarter ended June 30, 2023, BKR’s revenues increased 27.5% year-over-year to $7.47 billion. Its adjusted operating income came in at $631 million, up 67.8% from the prior year’s quarter. Its adjusted EBITDA rose 39.3% from the year-ago value to $907 million.
Furthermore, adjusted net income attributable to BKR grew 246.5% from the prior-year period to $395 million, and adjusted EPS came in at $0.39, an increase of 254.5% year-over-year. Also, the company’s free cash flow was $623 million, up 323.8% year-over-year.
Street expects BKR’s revenue for the fiscal year (ending December 2023) to increase 20.2% year-over-year to $25.44 billion. Likewise, the consensus EPS estimate of $1.54 indicates an improvement of 70.7% year-over-year. In addition, the company topped the consensus EPS estimates in three of the trailing four quarters.
BKR’s stock has gained 15.3% over the past six months and 29.5% year-to-date to close the last trading session at $37.22. Also, the stock is currently trading above its 50-day and 200-day moving averages of $34.79 and $30.81, respectively, indicating an uptrend.
BKR’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
BKR has an A grade for Momentum and Growth. It also has a B grade for Sentiment. BKR is ranked #12 out of 87 stocks in the Energy – Oil & Gas industry.
Click here to see the other ratings of BKR for Quality, Value, and Stability.
Stock #1: Shell plc (SHEL)
Headquartered in London, the United Kingdom, SHEL operates as an energy and petrochemical company in Europe, Asia, Oceania, Africa, the U.S., and rest of the Americas. The company operates through Integrated Gas; Upstream; Marketing; Chemicals and Products; and Renewables and Energy Solutions segments.
On July 27, SHEL commenced a $3 billion share buyback program covering an aggregate contract term of nearly three months. The maximum number of ordinary shares which may be purchased or committed to be purchased by the company under the program is 692,000,000. The purpose of the program is to reduce the issued share capital of the company.
On April 18, Shell U.K. Ltd, a subsidiary of SHEL, completed the restart of operations at the Pierce field in the UK Central North Sea, after a substantial upgrade enabling gas production after years of the field producing only oil.
Peak production could reach 30,000 barrels of oil equivalent per day, which is more than double the production prior to the redevelopment, primarily favoring more gas production over oil. The restart of operations at this field might boost the company’s profitability and growth.
For the second quarter that ended June 30, 2023, SHEL’s adjusted EBITDA from the Marketing segment increased 10.5% year-over-year to $1.60 billion. The segment’s cash inflow from operating activities was $1.41 billion, compared to an outflow of 454 million in the prior year’s period.
In addition, the company’s Renewables and Energy Solution segment’s cash inflow from operating activities came in at $3.19 billion, compared to an outflow of $558 million in the previous year’s quarter. As of June 30, 2023, the company’s cash and cash equivalents stood at $45.09 billion versus $40.25 billion as of December 31, 2022.
Analysts expect SHEL’s revenue for the fiscal year (ending December 2024) to increase 2.8% year-over-year to $349.81 billion. The company’s EPS for the same period is expected to grow 0.7% from the prior year to $8.50. Moreover, the company surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
Shares of SHEL have gained 13.2% year-to-date and 20.1% over the past year to close the last trading session at $63.39. Moreover, the stock is currently trading above its 50-day and 200-day moving averages of $61.39 and $59.63, respectively, indicating an uptrend.
SHEL’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
SHEL has an A grade for Momentum and a B for Stability, Sentiment, and Quality. It is ranked #6 in the same industry.
To access additional ratings of SHEL for Value, Growth, and Stability, click here.
What To Do Next?
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XOM shares fell $0.19 (-0.17%) in premarket trading Thursday. Year-to-date, XOM has gained 6.39%, versus a 17.56% 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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