The growth in domestic oil production this year, fueled by higher oil prices and strong energy demand, is expected to drive the demand for energy services. As a result, it may be a prudent decision to consider purchasing fundamentally strong energy stocks such as DNOW, MRC Global, and Solaris Oilfield this week, as they have the potential for gains.
The United States' oil production is projected to experience ongoing expansion in the coming years, fueled by increasing oil prices and global energy demand. This trend is expected to create numerous growth prospects for energy service companies.
This week, investors may find quality energy stocks such as NOW Inc. (DNOW), MRC Global Inc. (MRC), and Solaris Oilfield Infrastructure, Inc. (SOI) to be solid buying opportunities, considering the positive outlook for the industry.
Saudi Arabia, the leading global crude exporter, recently declared that it will continue its voluntary reduction in oil production by 1 million barrels per day (b/d) until the end of 2023. In a similar move, Russia, another significant oil producer, has also decided to extend its export reduction of 300,000 b/d until the end of this year.
Oil prices reached their highest point in over a year, but then retreated from those levels. This surge was driven by limited supply and low inventory levels. Two weeks prior, U.S. West Texas Intermediate futures reached $95.03 per barrel, the highest since August 2022. Additionally, Brent crude also reached its highest level since November of the previous year.
According to the U.S. Energy Information Administration (EIA), the forecast for Brent crude oil price suggests a potential average of $93 per barrel in the fourth quarter of 2023. This projection indicates a rise from the previous price of $86 per barrel in August. Additionally, the EIA anticipates that the price will average around $87 per barrel in the second half of the following year.
Based on the most recent Oil Market Report (OMR) from the International Energy Agency (IEA), it is projected that global oil demand will increase by 2.2 million b/d year-over-year, reaching 101.8 million b/d by 2023. This growth is primarily driven by a resurgence in Chinese consumption, as well as increased demand for jet fuel and petrochemical feedstocks.
Continued growth in domestic oil production is being fueled by higher oil prices, strong demand for oil and gas, and impressive well productivity. According to the September Short-Term Energy Outlook by the EIA, it is projected that U.S. crude oil production will reach record levels, averaging 12.8 million b/d this year and 13.2 million b/d in 2024.
According to a recent report from Consegic Business Intelligence, the worldwide oilfield services market is projected to achieve a value of $468.58 billion by 2023, with a compound annual growth rate (CAGR) of 5.9%. The market's expansion is primarily driven by the increasing utilization of oilfield services for drilling purposes, which is fueling its growth.
Furthermore, the oil and gas industry has witnessed significant technological advancements that have revolutionized drilling, exploration, and production processes. These advancements have not only enhanced efficiency but also reduced costs. As a result, there has been a surge in the demand for specialized oilfield services.
Given the positive developments in the industry, it is worth examining the key aspects of the top three Energy - Services stocks, starting with the third-ranked company.
MRC Global Inc. (MRC) is a stock worth considering.
MRC is an internationally recognized supplier of pipes, valves, fittings, and various infrastructure products and services. Our clientele includes the energy, industrial, and gas utility sectors. We provide a wide range of valves such as ball, butterfly, globe, check, needle, and plug valves. Additionally, we offer valve modification services, carbon steel fittings and flanges, natural gas distribution products, and a comprehensive selection of oilfield and industrial supplies and equipment.
MRC Global (US) Inc., a subsidiary of MRC, recently revealed that it has extended its Enterprise Framework Agreement with Shell plc (SHEL) until 2028. This agreement solidifies MRC Global's position as a crucial supplier of pipe, valves, and fittings, as well as ad-hoc valve actuation services for Shell's upstream, midstream, and downstream assets on a global scale.
In the last three years, MRC has experienced a Compound Annual Growth Rate (CAGR) of 4.4% in terms of revenue. Additionally, the company has seen significant growth in its EBIT and normalized net income, with CAGRs of 77.3% and 321.7% respectively, over the same period.
During the second quarter of 2023, MRC experienced a 2.7% growth in sales compared to the same period last year, reaching $871 million. Additionally, the company's gross profit saw a significant increase of 15.9% from the previous year, amounting to $175 million. MRC's operating income also showed substantial growth, with a 45.2% increase to $45 million compared to the same quarter in the prior year.
Furthermore, the company experienced significant growth in its net income attributable to common stockholders and earnings per common share. The net income attributable to common stockholders reached $18 million, marking a substantial increase of 125% compared to the previous year. Similarly, the earnings per common share also saw a significant boost, rising by 133.3% year-over-year to reach $0.21.
In addition to the impressive financial performance, the company generated a substantial amount of cash from its operations during the second quarter. Cash provided by operations amounted to $20 million, indicating a strong cash flow for the period.
MRC's revenue is projected to grow by 7.1% year-over-year to reach $3.60 billion by the end of December 2023, according to analysts. The consensus estimate for earnings per share (EPS) in the current year is $1.20, indicating a slight improvement compared to the previous year. Additionally, MRC has exceeded the consensus EPS estimates in three out of the last four quarters.
Over the last six months, MRC's shares have experienced a 3.1% increase, while over the past year, they have seen a significant growth of 21.3%. The last trading session concluded with the shares closing at $10.08.
The sound fundamentals of MRC are clearly reflected in its POWR Ratings. The stock has received an overall rating of B, which indicates a Buy recommendation according to our proprietary rating system. The POWR Ratings are determined by analyzing 118 different factors, with each factor being weighted to an optimal degree.
The stock exhibits strong momentum with an A grade, while its growth and value are rated as B. In the Energy - Services industry, it holds the 12th position out of 48 stocks.
In addition to the highlighted POWR Ratings, you can find MRC's ratings for Sentiment, Quality, and Stability on this page.
SOI is a company that specializes in the production and development of mobile proppant management systems. These systems are designed to efficiently handle the unloading, storage, and dispensing of proppant, water, and chemicals at oil and natural gas well sites. In addition to this, SOI also offers Railtronix, a software solution for inventory management, as well as AutoBlend, an electric blender that seamlessly integrates with other equipment. The company also provides fluid management systems and their own proprietary software called Solaris Lens.
SOI's Board of Directors announced on August 15 that a cash dividend of $0.11 per share of Class A common stock has been declared. This dividend will be paid on September 15, 2023, to shareholders who are recorded as holders as of September 5, 2023. This marks the 20th consecutive quarterly dividend for Solaris. With an annual dividend of $0.44, the current share price reflects a yield of 4.5%.
In the second quarter, the company bought back 1.4 million Class A common stock, which represents 3% of the total outstanding shares. As of now, there is still approximately $24 million left from the $50 million share repurchase authorization that was announced in the first quarter of 2023.
In the latest quarterly release, Bill Zartler, Chairman and CEO of SOI, stated that since 2018, the company has returned a total of $148 million to shareholders through dividends and share repurchases. As the company's budgeted growth capital spending decreases, they anticipate generating significant cash flow, which will enable them to continue implementing their enhanced shareholder return framework.
In the last three years, the company has experienced a compound annual growth rate (CAGR) of 23.3% in its revenue. Additionally, its EBITDA and total assets have grown at CAGRs of 6.6% and 4.9% respectively. Moreover, SIO's net income and earnings per share (EPS) have seen significant increases with respective CAGRs of 147.9% and 172% over the same period.
During the second quarter that concluded on June 30, 2023, SOI experienced a significant increase in its operating income. Specifically, there was a year-over-year growth of 52.9%, resulting in an operating income of $15.78 million. Additionally, the company's adjusted EBITDA also saw a substantial rise of 27.3% compared to the previous year, reaching $26.83 million. Furthermore, SOI's net income for the quarter showed a notable growth of 47.7% from the same period in the prior year, amounting to $12.24 million.
In addition, the company reported a 50% year-over-year increase in the EPS of its class A common stock, reaching $0.24. As of June 30, 2023, the company's cash and cash equivalents stood at $9.37 million, compared to $8.84 million as of December 31, 2022.
Analysts predict that SOI's earnings per share (EPS) and revenue will experience a 34.2% and 0.4% year-over-year growth for the fiscal year 2023, reaching $1.02 and $321.40 million, respectively. Additionally, it is worth noting that the company has consistently exceeded the consensus EPS estimates in the past four quarters, which is quite impressive.
In the fiscal year 2024, the company is projected to experience significant growth in both its EPS and revenue. Compared to the previous year, the EPS is expected to increase by 66.1% to reach $1.69. Similarly, the revenue is anticipated to grow by 15.3% to reach $370.44 million.
Over the last six months, the stock of SOI has experienced a 13% increase, reaching a closing price of $9.77 in the most recent trading session.
The POWR Ratings of SOIC indicate a strong outlook for the stock. With an overall rating of B in our proprietary rating system, it is recommended to buy this stock.
The stock is rated A for Momentum and B for Sentiment, placing it at the 9th position out of 48 stocks in its industry.
Click here to access more POWR Ratings for SOI, including Stability, Growth, Value, and Quality.
DNOW is a company that specializes in the distribution of energy and industrial products for various sectors including petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations. The company operates under the brand names DistributionNOW and DNOW. With a network of almost 170 locations, DNOW serves customers in the upstream, midstream, and downstream sectors.
Over the last three years, DNOW has experienced a significant growth in its EBITDA, with a Compound Annual Growth Rate (CAGR) of 472.9%. Additionally, the company's total assets have also seen a steady increase, growing at a CAGR of 9.9% during the same period.
DNOW reported strong financial results for the second quarter ending June 30, 2023. The company's revenue saw a year-over-year increase of 10.2%, reaching $594 million. Operating profit also experienced significant growth, rising by 24.1% to $36 million compared to the same period last year. Net income and earnings per share (EPS) attributable to DNOW stockholders were $34 million and $0.31, respectively, marking impressive increases of 30.8% and 34.8% from the previous year's quarter.
Furthermore, during the quarter, the company successfully generated a robust free cash flow of $79 million. As of June 30, 2023, the company's cash and cash equivalents stood at $203 million, with no long-term debt and a total liquidity of approximately $584 million.
According to analysts, DNOW is projected to experience a 10.1% increase in revenue for the fiscal year ending in December 2023, reaching $2.35 billion. Additionally, the company's earnings per share (EPS) for the current year are estimated to grow by 2.6% year-over-year, amounting to $0.98. It is worth noting that DNOW has exceeded the consensus revenue estimates in each of the four previous quarters.
The stock price has experienced a significant increase of 8% in the last six months and a smaller increase of 2.5% over the past year. The stock closed the most recent trading session at $11.62.
DNOW's positive prospects are evident in its POWR Ratings. The stock has received a solid overall rating of B, indicating a recommendation to Buy according to our exclusive rating system.
DNOW has received an A grade for its Momentum and a B grade for its Sentiment, Value, and Quality. In the Energy - Services industry, it holds the second position out of 47 stocks.
To access more DNOW ratings for Growth and Stability, please click on the following link.
In premarket trading on Thursday, DNOW shares remained stable. So far this year, DNOW has experienced a decline of -8.50%, while the benchmark S&P 500 index has seen a rise of 12.28% over the same period.
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