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4 US Integrated Oil Stocks Countering Industry Headwinds

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The coronavirus pandemic will continue to disrupt upstream, midstream and downstream energy operations in the United States. Stricter social-distancing measures to combat the highly contagious U.K. variant of coronavirus will dent the country’s fuel demand, thereby making the outlook for the Zacks Oil & Gas US Integrated industry gloomier.

However, some of the integrated energy players in the United States are combating the pandemic well, thanks to cost-saving initiatives and balance sheet strength. Among the frontrunners in the industry are ConocoPhillips (COP - Free Report) , Marathon Oil Corporation (MRO - Free Report) , Cactus Inc (WHD - Free Report) and Berry Corporation (BRY - Free Report) .

About the Industry

The Zacks Oil & Gas US Integrated industry comprises companies that are mostly involved in upstream midstream and downstream 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 pipelines networks and storage sites. The companies’ downstream operations entail activities like selling refined petroleum products like gasoline and jet fuel.

Overall, the upstream business is positively correlated to oil and natural gas prices. The produced commodity volumes are then transported to refineries through midstream assets, generating stable fee-based revenues.

What’s Shaping the Future of the Oil & Gas US Integrated Industry?

Coronavirus Woes: The federal health authorities have warned that the highly contagious U.K. variant of coronavirus is spreading rapidly in the United States. In the United States, the new strain will become dominant in the coming days, alerted the health authorities. Thus, the coronavirus pandemic is still affecting the energy market and acting as a resistant to crude price recovery. This is making the outlook of the domestic integrated energy companies’ upstream outlook gloomy.

Soft Gasoline Demand: Cases of new infections are increasingly building pressure on hospitals. In fact, health officials are urging Americans to comply with strict social-distancing measures in order to curb the spread of the new coronavirus variant. The practice of social distancing is likely to curb demand for gasoline and jet fuels, thereby negatively impacting integrated energy firms’ downstream operations.

Midstream Worries: Although oil drillers are gradually returning to shale plays, the upstream players are producing lower crude volumes as compared to the pre-pandemic level as oil price has not recovered fully. Thus, the demand for pipeline networks continues to remain soft, hurting integrated firms’ midstream business.  

Shift to Renewables: It has been a challenge for energy majors to provide sustainable energy to the entire world while reducing greenhouse gas emissions. In fact, European energy majors are actively focusing on clean energy and are setting ambitious goals to address the issue of climate change. With demand for fossil fuel gradually fading, U.S. integrated firms are likely to increase spending on renewable energy, making the outlook for oil and gas business gloomy.

Zacks Industry Rank Indicates Bearish Outlook

The Zacks Oil & Gas US Integrated industry is an 11-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #235, which places it in the bottom 7% 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 outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. While the industry’s bottom-line estimates for 2020 have moved down 165.9% in the past year, the same for 2021 have slumped 108.1%.

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 Lags Sector and S&P 500

The Zacks Oil & Gas US Integrated 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 lost 31.6% over this period as compared with the S&P 500’s improvement of 17% and the broader sector’s slump of 18.4%.

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 8.57X, lower than the S&P 500’s 17.07X. It is, however, higher than the sector’s trailing-12-month EV/EBITDA of 5.24X.

Over the past five years, the industry has traded as high as 21.78X, as low as 3.3X, with a median of 7.77X.


Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio

4 US Integrated Oil Stocks Trying to Fend Off Industry Challenges

Considering the downbeat industry scenario, it might be prudent for investors to maintain caution by either keeping on the sidelines for a while, or buying one Zacks Rank #2 (Buy) stock and holding on to three fundamentally-sound Zacks Rank #3 (Hold) stocks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cactus Inc: The company has no bank debt outstanding as of Sep 30, 2020, placing it well to combat coronavirus woes. With drilling activities gradually ramping up, Cactus is likely to gain since its highly-engineered wellhead and pressure control equipment are used by drillers for onshore unconventional oil wells. The Zacks #2 Ranked company has seen upward earnings estimate revisions for 2021 in the past 60 days.

Price and Consensus: WHD



ConocoPhillips: Based on production and proved reserves, the company is the largest explorer and producer in the world. Notably, the Houston, TX-based company is better placed than many of the industry peers to combat the pandemic. This is because of lower debt exposure and low-cost asset base – notable of which are Permian basin and Eagle Ford shale play. The #3 Ranked stock is likely to see earnings growth of almost 200% in 2021.

Price and Consensus: COP



Marathon Oil Corporation: Headquartered in Houston, TX, Marathon Oil is an explorer and producer with strong focus on the United States. The company is managing the volatile business scenario extremely well, thanks to the firm’s cost structure and capital allocation managements. Notably, the Zacks Rank #3 company has reinstated quarterly base dividend and lowered $100 million of gross debt. Marathon Oil has witnessed upward revisions for its 2021 bottom-line estimate in the past seven days.

Price and Consensus: MRO



Berry Corporation: The company has lesser exposure to debt capital as compared to most of the players belonging to the industry. Thus, the company is better placed to combat the volatile commodity pricing environment. The Dallas, TX-based firm’s strong-cost saving initiatives are aiding cash flow generation. The #3 Ranked company has seen upward revisions for its 2021 bottom-line estimate in the past 30 days.

Price and Consensus: BRY

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In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


ConocoPhillips (COP) - free report >>

Marathon Oil Corporation (MRO) - free report >>

Berry Corporation (BRY) - free report >>

Cactus, Inc. (WHD) - free report >>