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International Oil Industry is Back on Track: 5 Solid Stocks to Gain
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Energy companies have come a long way since last year when the coronavirus pandemic had hit global oil demand massively. Economies are now reopening with more people socializing and going to work, brightening up the outlook for the Zacks Oil and Gas Integrated International industry.
Thus, the business environment for upstream, midstream and downstream operations of international integrated energy firms is improving rapidly. Among the pack, Exxon Mobil Corporation (XOM - Free Report) , Chevron Corporation (CVX - Free Report) , PetroChina Company Limited , Public Joint Stock Company Gazprom Neft and Repsol SA (REPYY - Free Report) are well positioned to make the most of the exploding fuel demand.
About the Industry
The Zacks Oil and Gas Integrated International industry covers companies that are primarily involved in upstream, midstream and downstream operations. These companies have upstream businesses in the United States (including prolific shale plays and deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. The midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. Under downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities also involve chemical businesses that manufacture raw material used for making plastics. The integrated players are now gradually focusing on renewables, leading to energy transitions. In fact, the firms are aiming to lower emissions from operations and cut carbon intensity of products it sells.
4 Trends Shaping the Future of the Oil & Gas Integrated International Industry
Rebound in Oil Price: The price of West Texas Intermediate (WTI) crude, trading at more than $72 per barrel mark, has improved drastically from the pandemic-hit April last year, when oil was in the negative territory. With coronavirus vaccines being rolled out at a massive scale, leading to gradual reopening of the economy, the demand for fuel will possibly improve further. OPEC’s prediction of acceleration in global oil demand in the second half of 2021 reassures that the world is again demanding more oil, paving the way for further crude price recovery. Hence, the favorable business scenario will continue to aid upstream business of international integrated energy players.
Midstream Demand to Improve: With possibilities of upstream energy companies to add more rigs, the production of oil and gas is expected to increase in 2021. This will likely boost demand for pipeline and storage assets since more volumes of the commodities will need to get transported and stored. Importantly, the midstream business has lower exposure to commodity price volatility since pipeline assets are generally been booked by shippers for the long term, thereby generating stable fee-based revenues.
Recovering Downstream Business: Since countries across the world will ramp up the rollout of coronavirus vaccines, this will encourage more people to go to office and travel. With more people coming out of strict social-distancing measures, the demand for gasoline, diesel fuel and jet fuel will increase.
Business Diversification: The international integrated energy companies are gradually investing money in renewable business. Thus, by diversifying operations, the companies will be able to capitalize on mounting demand for cleaner energy.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks Oil - Energy sector. It carries a Zacks Industry Rank #46, which places it at the top 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Before we present a few international integrated energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Lags Sector and S&P 500
The Zacks Oil and Gas Integrated International industry has lagged the broader Zacks Oil - Energy sector as well as the Zacks S&P 500 composite over the past year.
The industry has gained 33.9% over this period as compared to the S&P 500’s improvement of 40.4% and the broader sector’s rally of 42.1%.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes not just equity into account but also the level of debt.
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, the industry is currently trading at 5.26X, lower than the S&P 500’s 17.59X. It is also below the sector’s trailing-12-month EV/EBITDA of 5.8X.
Over the past five years, the industry has traded as high as 10.23X, as low as 2.83X, with a median of 5.36X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
5 Integrated International Stocks Moving Ahead of the Pack
Exxon Mobil Corporation: The company is among the largest integrated energy companies in the world. The energy major can rely on its strong balance sheet to survive the pandemic. The firm recently announced another significant oil discovery at the Longtail-3 well, offshore Guyana. The new find added to the prior estimate of gross recoverable resource of 9 billion barrels of oil equivalent in the Stabroek block. The firm also has a strong presence in the prolific Permian where it continues to lower its fracking & drilling costs. Notably, the Zacks Rank #1 (Strong Buy) company has witnessed upward earnings estimate revisions for 2021 in the past seven days.
Price and Consensus: XOM
PetroChina Company Limited: The company plays a leading role in China since it is among the largest oil and gas producers in the country. In China, the company has placed itself as one of the biggest generators of sales revenues. The #1 Ranked stock has witnessed upward earnings estimate revisions for 2021 over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: PTR
Repsol SA: In Peru, the company is among the leading energy players with rights to four production blocks. The company is also the operator of the country’s main oil refinery – La Pampilla. Moreover, the company has a presence in the country’s market for lubricants and aviation fuel. The Zacks #1 Ranked energy stock also generates stable revenues from a network of more than 480 service stations. Notably, the company is likely to see earnings growth of 235.6% in 2021.
Price and Consensus: REPYY
Public Joint Stock Company Gazprom Neft: With the employment of cutting-edge refining and production technologies, the company is among the energy players in Russia. The company, with a Zacks Rank of 1, also has a strong presence in the international energy business and has witnessed upward earnings estimate revisions for 2021 in the past 30 days.
Price and Consensus: GZPFY
Chevron Corporation: The firm is also a leading integrated energy player, with operations across the world. Apart from a strong balance sheet, Chevron has solid capital discipline that will help it tide over the volatile commodity prices. Notably, the energy major’s conservative capital spending, especially during the pandemic, will probably help the company generate considerable cashflow. The prime growth driver for the company, at least in the near term, is its low-cost Permian projects. The Zacks Rank #3 (Hold) stock has seen upward earnings estimate revisions for 2021 in the past 30 days.
Price and Consensus: CVX
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Image: Bigstock
International Oil Industry is Back on Track: 5 Solid Stocks to Gain
Energy companies have come a long way since last year when the coronavirus pandemic had hit global oil demand massively. Economies are now reopening with more people socializing and going to work, brightening up the outlook for the Zacks Oil and Gas Integrated International industry.
Thus, the business environment for upstream, midstream and downstream operations of international integrated energy firms is improving rapidly. Among the pack, Exxon Mobil Corporation (XOM - Free Report) , Chevron Corporation (CVX - Free Report) , PetroChina Company Limited , Public Joint Stock Company Gazprom Neft and Repsol SA (REPYY - Free Report) are well positioned to make the most of the exploding fuel demand.
About the Industry
The Zacks Oil and Gas Integrated International industry covers companies that are primarily involved in upstream, midstream and downstream operations. These companies have upstream businesses in the United States (including prolific shale plays and deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. The midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. Under downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities also involve chemical businesses that manufacture raw material used for making plastics. The integrated players are now gradually focusing on renewables, leading to energy transitions. In fact, the firms are aiming to lower emissions from operations and cut carbon intensity of products it sells.
4 Trends Shaping the Future of the Oil & Gas Integrated International Industry
Rebound in Oil Price: The price of West Texas Intermediate (WTI) crude, trading at more than $72 per barrel mark, has improved drastically from the pandemic-hit April last year, when oil was in the negative territory. With coronavirus vaccines being rolled out at a massive scale, leading to gradual reopening of the economy, the demand for fuel will possibly improve further. OPEC’s prediction of acceleration in global oil demand in the second half of 2021 reassures that the world is again demanding more oil, paving the way for further crude price recovery. Hence, the favorable business scenario will continue to aid upstream business of international integrated energy players.
Midstream Demand to Improve: With possibilities of upstream energy companies to add more rigs, the production of oil and gas is expected to increase in 2021. This will likely boost demand for pipeline and storage assets since more volumes of the commodities will need to get transported and stored. Importantly, the midstream business has lower exposure to commodity price volatility since pipeline assets are generally been booked by shippers for the long term, thereby generating stable fee-based revenues.
Recovering Downstream Business: Since countries across the world will ramp up the rollout of coronavirus vaccines, this will encourage more people to go to office and travel. With more people coming out of strict social-distancing measures, the demand for gasoline, diesel fuel and jet fuel will increase.
Business Diversification: The international integrated energy companies are gradually investing money in renewable business. Thus, by diversifying operations, the companies will be able to capitalize on mounting demand for cleaner energy.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks Oil - Energy sector. It carries a Zacks Industry Rank #46, which places it at the top 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Before we present a few international integrated energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Lags Sector and S&P 500
The Zacks Oil and Gas Integrated International industry has lagged the broader Zacks Oil - Energy sector as well as the Zacks S&P 500 composite over the past year.
The industry has gained 33.9% over this period as compared to the S&P 500’s improvement of 40.4% and the broader sector’s rally of 42.1%.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes not just equity into account but also the level of debt.
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, the industry is currently trading at 5.26X, lower than the S&P 500’s 17.59X. It is also below the sector’s trailing-12-month EV/EBITDA of 5.8X.
Over the past five years, the industry has traded as high as 10.23X, as low as 2.83X, with a median of 5.36X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
5 Integrated International Stocks Moving Ahead of the Pack
Exxon Mobil Corporation: The company is among the largest integrated energy companies in the world. The energy major can rely on its strong balance sheet to survive the pandemic. The firm recently announced another significant oil discovery at the Longtail-3 well, offshore Guyana. The new find added to the prior estimate of gross recoverable resource of 9 billion barrels of oil equivalent in the Stabroek block. The firm also has a strong presence in the prolific Permian where it continues to lower its fracking & drilling costs. Notably, the Zacks Rank #1 (Strong Buy) company has witnessed upward earnings estimate revisions for 2021 in the past seven days.
Price and Consensus: XOM
PetroChina Company Limited: The company plays a leading role in China since it is among the largest oil and gas producers in the country. In China, the company has placed itself as one of the biggest generators of sales revenues. The #1 Ranked stock has witnessed upward earnings estimate revisions for 2021 over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: PTR
Repsol SA: In Peru, the company is among the leading energy players with rights to four production blocks. The company is also the operator of the country’s main oil refinery – La Pampilla. Moreover, the company has a presence in the country’s market for lubricants and aviation fuel. The Zacks #1 Ranked energy stock also generates stable revenues from a network of more than 480 service stations. Notably, the company is likely to see earnings growth of 235.6% in 2021.
Price and Consensus: REPYY
Public Joint Stock Company Gazprom Neft: With the employment of cutting-edge refining and production technologies, the company is among the energy players in Russia. The company, with a Zacks Rank of 1, also has a strong presence in the international energy business and has witnessed upward earnings estimate revisions for 2021 in the past 30 days.
Price and Consensus: GZPFY
Chevron Corporation: The firm is also a leading integrated energy player, with operations across the world. Apart from a strong balance sheet, Chevron has solid capital discipline that will help it tide over the volatile commodity prices. Notably, the energy major’s conservative capital spending, especially during the pandemic, will probably help the company generate considerable cashflow. The prime growth driver for the company, at least in the near term, is its low-cost Permian projects. The Zacks Rank #3 (Hold) stock has seen upward earnings estimate revisions for 2021 in the past 30 days.
Price and Consensus: CVX
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Click here to download this report FREE >>