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4 US Integrated Oil Stocks to Gain From the Prospering Industry
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The massive improvement in oil price reflects the significant recovery of the energy business from the coronavirus pandemic-induced slump. From upstream activities like exploration and production operations to refining, the prospects for companies are rosy now as fuel demand has recovered considerably. This is enhancing the outlook for the Zacks Oil & Gas US Integrated industry.
Among the frontrunners in the industry that will possibly make the most of the improving business scenario are ConocoPhillips (COP - Free Report) , Occidental Petroleum Corporation (OXY - Free Report) , Hess Corporation (HES - Free Report) and Marathon Oil Corporation (MRO - Free Report) .
Industry Description
The Zacks Oil & Gas US Integrated industry comprises companies mostly involved in upstream and midstream energy businesses. The upstream operations entail oil and natural gas exploration and production in the prolific shale plays of the United States. The integrated energy companies are also engaged in midstream businesses through gathering and processing facilities along with transportation pipeline networks and storage sites. Overall, the upstream business is positively correlated to oil and gas prices. The produced commodity volumes are then transported through midstream assets, generating stable fee-based revenues. The integrated energy players in the United States also have access to downstream operations where the transported oil volumes are converted to finished products, comprising gasoline, natural gas liquids and diesel, through refining activities.
4 Trends Shaping the Future of the Oil & Gas US Integrated Industry
Surging Oil Price: The price of West Texas Intermediate (WTI) crude is trading higher than the $90-per-barrel mark, marking a massive improvement of more than 56% in the past year. Strong fuel demand across the world and ongoing tensions in Eastern Europe are aiding the rally in oil price. The massive improvement in oil price is aiding the integrated company’s upstream business.
Refining Business Recovers: Rising fuel demand is aiding refining operations. With more people socializing and going to work, demand for gasoline and jet fuel will continue to rise. Thus, although the cost of refining is higher, a massive recovery in demand for end products will continue to spur downstream operations.
Stable Fee-Based Revenues: The integrated companies’ midstream business is relatively less exposed to the volatility in commodity prices. This is because the pipeline and storage assets are usually booked by shippers for the long term, securing stable fee-based revenues.
Climate Change Position: Integrated players in the United States have been recognizing climate change as a serious risk that needs to be addressed. The companies are now focused on reducing greenhouse gas emissions and flaring rates. ConocoPhillips announced that it will lead energy transitions by improving its targets for Scope 1 and 2 GHG emissions intensity reduction. The company has set a target for 2030 intensity reduction of 40-50%, an improvement from the prior target of 35-45%.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil & Gas US Integrated industry is a 11-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #41, which places it in the top 16% 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 bullish 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.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Oil & Gas US Integrated industry has surpassed the broader Zacks Oil - Energy sector as well as the Zacks S&P 500 composite over the past year.
The industry has risen 88.5% over this period as compared with the S&P 500’s improvement of 15.2% and the broader sector’s growth of 32.5%.
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 into account not just equity 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 6.71X, lower than the S&P 500’s 15.12X. It is, however, higher than the sector’s trailing-12-month EV/EBITDA of 5.08X.
Over the past three years, the industry has traded as high as 13.26X, as low as 3.28X, with a median of 5.78X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
4 US Integrated Oil Stocks Moving Ahead of the Pack
Marathon Oil: Headquartered in Houston, TX, Marathon Oil is an explorer and producer with a strong focus on the United States. Marathon Oil’s differentiated business model has enabled it to generate significant free cash flows that will be used to lower its debt burden.
Marathon Oil’s strong and sustainable businesses have also enabled it to raise its base dividend for four successive quarters. MRO, carrying a Zacks Rank #1 (Strong Buy), has seen seven upward earnings estimate revisions for 2022 in the past 30 days.
Price and Consensus: MRO
Occidental Petroleum: Headquartered in Houston, TX, Occidental Petroleum is an oil and natural gas explorer with a presence in the midstream energy business. Apart from additional cost-saving measures, Occidental Petroleum has been capturing acquisition cost synergies, aiding its bottom line.
OXY has seen upward earnings estimate revisions for its 2022 bottom line over the past seven days. Occidental Petroleum, with a Zacks Rank of 1, is likely to see earnings growth of 79.9% in 2022.
Price and Consensus: OXY
ConocoPhillips: Considering production and reserves, ConocoPhillips is among the leading upstream energy players in the world. Recently, ConocoPhillips reported strong fourth-quarter results, thanks to increased production volumes and realized oil equivalent prices. Along with the quarterly results, ConocoPhillips reported a second-quarter variable return of cash (VROC) payment of 30 cents per share. This reflects an increment of 50% from the first-quarter VROC.
ConocoPhillips, with a Zacks Rank of 1, revised higher its expected 2022 return of capital to shareholders. The new guidance is at $8 billion, reflecting an increase from the prior projection of $7 billion. The incremental returns to stockholders will get distributed through share repurchases and VROC tiers. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: COP
Hess: Headquartered in New York, Hess is a leading upstream firm with a footprint in Bakken, Gulf of Mexico and offshore Guyana. Hess strongly believes that its position in Guyana is strong enough to generate growth in long-term cashflows.
Hess recently reported strong fourth-quarter results, thanks to higher commodity price realizations and increased contributions from the midstream business. For 2022, Hess, carrying a Zacks Rank #3 (Hold), has seen five upward earnings estimate revisions in the past 30 days.
Price and Consensus: HES
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4 US Integrated Oil Stocks to Gain From the Prospering Industry
The massive improvement in oil price reflects the significant recovery of the energy business from the coronavirus pandemic-induced slump. From upstream activities like exploration and production operations to refining, the prospects for companies are rosy now as fuel demand has recovered considerably. This is enhancing the outlook for the Zacks Oil & Gas US Integrated industry.
Among the frontrunners in the industry that will possibly make the most of the improving business scenario are ConocoPhillips (COP - Free Report) , Occidental Petroleum Corporation (OXY - Free Report) , Hess Corporation (HES - Free Report) and Marathon Oil Corporation (MRO - Free Report) .
Industry Description
The Zacks Oil & Gas US Integrated industry comprises companies mostly involved in upstream and midstream energy businesses. The upstream operations entail oil and natural gas exploration and production in the prolific shale plays of the United States. The integrated energy companies are also engaged in midstream businesses through gathering and processing facilities along with transportation pipeline networks and storage sites. Overall, the upstream business is positively correlated to oil and gas prices. The produced commodity volumes are then transported through midstream assets, generating stable fee-based revenues. The integrated energy players in the United States also have access to downstream operations where the transported oil volumes are converted to finished products, comprising gasoline, natural gas liquids and diesel, through refining activities.
4 Trends Shaping the Future of the Oil & Gas US Integrated Industry
Surging Oil Price: The price of West Texas Intermediate (WTI) crude is trading higher than the $90-per-barrel mark, marking a massive improvement of more than 56% in the past year. Strong fuel demand across the world and ongoing tensions in Eastern Europe are aiding the rally in oil price. The massive improvement in oil price is aiding the integrated company’s upstream business.
Refining Business Recovers: Rising fuel demand is aiding refining operations. With more people socializing and going to work, demand for gasoline and jet fuel will continue to rise. Thus, although the cost of refining is higher, a massive recovery in demand for end products will continue to spur downstream operations.
Stable Fee-Based Revenues: The integrated companies’ midstream business is relatively less exposed to the volatility in commodity prices. This is because the pipeline and storage assets are usually booked by shippers for the long term, securing stable fee-based revenues.
Climate Change Position: Integrated players in the United States have been recognizing climate change as a serious risk that needs to be addressed. The companies are now focused on reducing greenhouse gas emissions and flaring rates. ConocoPhillips announced that it will lead energy transitions by improving its targets for Scope 1 and 2 GHG emissions intensity reduction. The company has set a target for 2030 intensity reduction of 40-50%, an improvement from the prior target of 35-45%.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil & Gas US Integrated industry is a 11-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #41, which places it in the top 16% 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 bullish 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.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Oil & Gas US Integrated industry has surpassed the broader Zacks Oil - Energy sector as well as the Zacks S&P 500 composite over the past year.
The industry has risen 88.5% over this period as compared with the S&P 500’s improvement of 15.2% and the broader sector’s growth of 32.5%.
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 into account not just equity 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 6.71X, lower than the S&P 500’s 15.12X. It is, however, higher than the sector’s trailing-12-month EV/EBITDA of 5.08X.
Over the past three years, the industry has traded as high as 13.26X, as low as 3.28X, with a median of 5.78X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
4 US Integrated Oil Stocks Moving Ahead of the Pack
Marathon Oil: Headquartered in Houston, TX, Marathon Oil is an explorer and producer with a strong focus on the United States. Marathon Oil’s differentiated business model has enabled it to generate significant free cash flows that will be used to lower its debt burden.
Marathon Oil’s strong and sustainable businesses have also enabled it to raise its base dividend for four successive quarters. MRO, carrying a Zacks Rank #1 (Strong Buy), has seen seven upward earnings estimate revisions for 2022 in the past 30 days.
Price and Consensus: MRO
Occidental Petroleum: Headquartered in Houston, TX, Occidental Petroleum is an oil and natural gas explorer with a presence in the midstream energy business. Apart from additional cost-saving measures, Occidental Petroleum has been capturing acquisition cost synergies, aiding its bottom line.
OXY has seen upward earnings estimate revisions for its 2022 bottom line over the past seven days. Occidental Petroleum, with a Zacks Rank of 1, is likely to see earnings growth of 79.9% in 2022.
Price and Consensus: OXY
ConocoPhillips: Considering production and reserves, ConocoPhillips is among the leading upstream energy players in the world. Recently, ConocoPhillips reported strong fourth-quarter results, thanks to increased production volumes and realized oil equivalent prices. Along with the quarterly results, ConocoPhillips reported a second-quarter variable return of cash (VROC) payment of 30 cents per share. This reflects an increment of 50% from the first-quarter VROC.
ConocoPhillips, with a Zacks Rank of 1, revised higher its expected 2022 return of capital to shareholders. The new guidance is at $8 billion, reflecting an increase from the prior projection of $7 billion. The incremental returns to stockholders will get distributed through share repurchases and VROC tiers. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: COP
Hess: Headquartered in New York, Hess is a leading upstream firm with a footprint in Bakken, Gulf of Mexico and offshore Guyana. Hess strongly believes that its position in Guyana is strong enough to generate growth in long-term cashflows.
Hess recently reported strong fourth-quarter results, thanks to higher commodity price realizations and increased contributions from the midstream business. For 2022, Hess, carrying a Zacks Rank #3 (Hold), has seen five upward earnings estimate revisions in the past 30 days.
Price and Consensus: HES