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4 Integrated US Oil Stocks Set to Escape Industry Weakness
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High inflation is probably indicating an impending recession. Uncertainties and commodity price volatility are affecting the energy market, hurting the prospects for upstream and downstream businesses, thereby making the outlook for the Zacks Oil & Gas US Integrated industry gloomy.
Among the companies in the industry that will probably survive the business challenges are ConocoPhillips (COP - Free Report) , Occidental Petroleum Corporation (OXY - Free Report) , Hess Corporation (HES - Free Report) and Cactus Inc. (WHD - 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 wherein the transported oil volumes are converted to finished products, comprising gasoline, natural gas liquids and diesel, through refining activities.
3 Trends Shaping the Future of the Oil & Gas US Integrated Industry
Inflationary Pressure: Broad inflationary pressures are making the broader market extremely volatile. This is because investors are concerned, following warnings from central banks, that interest rates are needed to be held at higher levels for a longer period. In turn, this has raised fears of a recession, spurring market volatility. This could hurt energy demand, which might hurt oil prices. Thus, upstream businesses of the integrated energy players are under pressure.
Refining Business Under Pressure: Worries about recessions have also raised concerns about weak fuel demand. Since cashflows from refining activities are dependent on demand for end petroleum products, the integrated companies’ refining businesses might get hurt.
Low Dividend Yield: Over the past two years, the composite stocks belonging to the industry are consistently generating lower dividend yields than the composite stocks belonging to the energy sector.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil & Gas US Integrated industry is a nine-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #154, which places it in the bottom 38% 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 bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 and the Zacks S&P 500 composite over the past year.
The industry has risen 69.6% over this period against the S&P 500’s decline of 21.4% and the broader sector’s growth of 34%.
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 3.89X, lower than the S&P 500’s 11.56X. It is, however, higher than the sector’s trailing-12-month EV/EBITDA of 3.19X.
Over the past five years, the industry has traded as high as 13.41X, as low as 3.33X, with a median of 5.71X.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
4 US Integrated Oil Stocks Trying to Survive the Industry Challenges
Cactus: Cactus has been aiding its clients in fast-tracking their well drilling and completion activities. The company has also been enabling lower operator emissions per barrel of production. Thus, there has been a significantly lower carbon intensity per well. Cactus carries a Zacks Rank #3 (Hold) and is likely to see earnings growth of 147.2% and 36.3% for 2022 and 2023, respectively.
Price and Consensus: WHD
ConocoPhillips: Considering production and reserves, ConocoPhillips is among the leading upstream energy players in the world. It is strongly focused on returning capital to shareholders. ConocoPhillips, with a Zacks Rank of 3, is likely to see earnings growth of 134.4% for 2022. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: COP
Hess: Headquartered in New York, Hess is a leading upstream firm with a footprint in Bakken, the Gulf of Mexico and offshore Guyana. The firm believes that its position in Guyana is strong enough to generate growth in long-term cashflows.
For 2022, Hess, carrying a Zacks Rank #3, is likely to witness earnings growth of 228.8%.
Price and Consensus: HES
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, it has been capturing acquisition cost synergies, aiding its bottom line. Occidental Petroleum, with a Zacks Rank of 3, is likely to see earnings growth of 279.6% for 2022.
Price and Consensus: OXY
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4 Integrated US Oil Stocks Set to Escape Industry Weakness
High inflation is probably indicating an impending recession. Uncertainties and commodity price volatility are affecting the energy market, hurting the prospects for upstream and downstream businesses, thereby making the outlook for the Zacks Oil & Gas US Integrated industry gloomy.
Among the companies in the industry that will probably survive the business challenges are ConocoPhillips (COP - Free Report) , Occidental Petroleum Corporation (OXY - Free Report) , Hess Corporation (HES - Free Report) and Cactus Inc. (WHD - 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 wherein the transported oil volumes are converted to finished products, comprising gasoline, natural gas liquids and diesel, through refining activities.
3 Trends Shaping the Future of the Oil & Gas US Integrated Industry
Inflationary Pressure: Broad inflationary pressures are making the broader market extremely volatile. This is because investors are concerned, following warnings from central banks, that interest rates are needed to be held at higher levels for a longer period. In turn, this has raised fears of a recession, spurring market volatility. This could hurt energy demand, which might hurt oil prices. Thus, upstream businesses of the integrated energy players are under pressure.
Refining Business Under Pressure: Worries about recessions have also raised concerns about weak fuel demand. Since cashflows from refining activities are dependent on demand for end petroleum products, the integrated companies’ refining businesses might get hurt.
Low Dividend Yield: Over the past two years, the composite stocks belonging to the industry are consistently generating lower dividend yields than the composite stocks belonging to the energy sector.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil & Gas US Integrated industry is a nine-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #154, which places it in the bottom 38% 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 bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 and the Zacks S&P 500 composite over the past year.
The industry has risen 69.6% over this period against the S&P 500’s decline of 21.4% and the broader sector’s growth of 34%.
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 3.89X, lower than the S&P 500’s 11.56X. It is, however, higher than the sector’s trailing-12-month EV/EBITDA of 3.19X.
Over the past five years, the industry has traded as high as 13.41X, as low as 3.33X, with a median of 5.71X.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
4 US Integrated Oil Stocks Trying to Survive the Industry Challenges
Cactus: Cactus has been aiding its clients in fast-tracking their well drilling and completion activities. The company has also been enabling lower operator emissions per barrel of production. Thus, there has been a significantly lower carbon intensity per well. Cactus carries a Zacks Rank #3 (Hold) and is likely to see earnings growth of 147.2% and 36.3% for 2022 and 2023, respectively.
Price and Consensus: WHD
ConocoPhillips: Considering production and reserves, ConocoPhillips is among the leading upstream energy players in the world. It is strongly focused on returning capital to shareholders. ConocoPhillips, with a Zacks Rank of 3, is likely to see earnings growth of 134.4% for 2022. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: COP
Hess: Headquartered in New York, Hess is a leading upstream firm with a footprint in Bakken, the Gulf of Mexico and offshore Guyana. The firm believes that its position in Guyana is strong enough to generate growth in long-term cashflows.
For 2022, Hess, carrying a Zacks Rank #3, is likely to witness earnings growth of 228.8%.
Price and Consensus: HES
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, it has been capturing acquisition cost synergies, aiding its bottom line. Occidental Petroleum, with a Zacks Rank of 3, is likely to see earnings growth of 279.6% for 2022.
Price and Consensus: OXY