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5 US Integrated Oil Stocks to Gain as Fuel Demand Explodes
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The surge in oil and natural gas prices reflects the gradual recovery of the energy business from the coronavirus pandemic-induced slump. From exploration and production activities to refining, prospects for companies are rosy now as fuel demand has recovered significantly. 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 recovering business scenario are Occidental Petroleum Corporation (OXY - Free Report) , Hess Corporation (HES - Free Report) , Marathon Oil Corporation (MRO - Free Report) , DT Midstream, Inc. (DTM - Free Report) and PHX Minerals Inc (PHX - Free Report) .
Industry Description
The Zacks Oil & Gas US Integrated industry comprises companies that are 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 pipelines 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.
What's Shaping the Future of the Oil & Gas US Integrated Industry?
Rising Oil Price: Global demand for oil is recovering at a rapid pace amid tight supply of the commodity. Demand is improving faster than what most analysts thought on the rapid rollout of coronavirus vaccines and an improving outlook for fuel demand backing crude price. The price of West Texas Intermediate (WTI) crude is trading higher than the $75-per-barrel mark again, highlighting a substantial improvement from the negative territory hit last April. The massive improvement in oil price is aiding the integrated company’s upstream business.
Gas Price Surges: As compared to last year, the price of natural gas has skyrocketed. With countries getting increasingly reliant on natural gas for room heating purposes, there is not sufficient gas to replenish the reduced stock before winter. With more reliance on the commodity as countries are preferring the use of cleaner fuel, gas price has been rallying, thereby brightening up the outlook for gas exploration and production.
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 recently 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 #89, which places it in the top 35% 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 120.7% over this period as compared with the S&P 500’s improvement of 35.4% and the broader sector’s growth of 54.8%.
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 7.31X, lower than the S&P 500’s 15.98X. It is, however, higher than the sector’s trailing-12-month EV/EBITDA of 5.05X.
Over the past three years, the industry has traded as high as 13.26X, as low as 3.28X, with a median of 5.60X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
5 US Integrated Oil Stocks Moving Ahead of the Pack
PHX Minerals: The company has continued to perform extremely well with strategies of divesting lower margin assets while investing in core mineral assets. The company is also focused on reducing debt load, thereby strengthening its financial position. For fiscal 2021, the stock carrying a Zacks Rank #2 (Buy), has witnessed upward earnings estimate revisions over the past 30 days.
Price and Consensus: PHX
DT Midstream, Inc: With a portfolio of natural gas midstream interstate pipelines and intrastate pipelines, the company has secured handsome cashflows from its long-term contracts. DT Midstream has a strong balance sheet with no maturities of huge debt for as long as seven years. In the past 30 days, the #2 Ranked stock has witnessed upward earnings estimate revisions for 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: DTM
Hess: Headquartered in New York, Hess is a leading upstream firm with footprint in Bakken, Gulf of Mexico and offshore Guyana. The company strongly believes that its position in Guyana is strong enough to generate growth in long-term cashflows. For 2021, the stock carrying a Zacks Rank #3 (Hold), has seen no earnings estimate revision in the past seven days. For the next year, the stock has witnessed upward earnings estimate revisions over the same time frame.
Price and Consensus: HES
Marathon Oil: Headquartered in Houston, TX, Marathon Oil is an explorer and producer with strong focus on the United States. The company’s differentiated business model has enabled it to generate significant free cash flows that will be used to lower debt burden. The company’s strong and sustainable business model has also enabled it to raise its quarterly base dividend. The #3 Ranked stock has seen no earnings estimate revision for 2021 in the past seven days. For the next year, the company has witnessed upward earnings estimate revisions over the same time frame.
Price and Consensus: MRO
Occidental Petroleum: Headquartered in Houston, TX, Occidental Petroleum is an oil and natural gas explorer with presence in the midstream energy business. Apart from additional cost-saving measures, the company has been capturing acquisition cost synergies, aiding its bottom line. The stock has seen upward earnings estimate revisions for its 2021 bottom line over the past seven days. The stock, with a Zacks Rank of 3, is likely to see earnings growth of 128.1% in 2021.
Price and Consensus: OXY
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5 US Integrated Oil Stocks to Gain as Fuel Demand Explodes
The surge in oil and natural gas prices reflects the gradual recovery of the energy business from the coronavirus pandemic-induced slump. From exploration and production activities to refining, prospects for companies are rosy now as fuel demand has recovered significantly. 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 recovering business scenario are Occidental Petroleum Corporation (OXY - Free Report) , Hess Corporation (HES - Free Report) , Marathon Oil Corporation (MRO - Free Report) , DT Midstream, Inc. (DTM - Free Report) and PHX Minerals Inc (PHX - Free Report) .
Industry Description
The Zacks Oil & Gas US Integrated industry comprises companies that are 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 pipelines 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.
What's Shaping the Future of the Oil & Gas US Integrated Industry?
Rising Oil Price: Global demand for oil is recovering at a rapid pace amid tight supply of the commodity. Demand is improving faster than what most analysts thought on the rapid rollout of coronavirus vaccines and an improving outlook for fuel demand backing crude price. The price of West Texas Intermediate (WTI) crude is trading higher than the $75-per-barrel mark again, highlighting a substantial improvement from the negative territory hit last April. The massive improvement in oil price is aiding the integrated company’s upstream business.
Gas Price Surges: As compared to last year, the price of natural gas has skyrocketed. With countries getting increasingly reliant on natural gas for room heating purposes, there is not sufficient gas to replenish the reduced stock before winter. With more reliance on the commodity as countries are preferring the use of cleaner fuel, gas price has been rallying, thereby brightening up the outlook for gas exploration and production.
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 recently 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 #89, which places it in the top 35% 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 120.7% over this period as compared with the S&P 500’s improvement of 35.4% and the broader sector’s growth of 54.8%.
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 7.31X, lower than the S&P 500’s 15.98X. It is, however, higher than the sector’s trailing-12-month EV/EBITDA of 5.05X.
Over the past three years, the industry has traded as high as 13.26X, as low as 3.28X, with a median of 5.60X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
5 US Integrated Oil Stocks Moving Ahead of the Pack
PHX Minerals: The company has continued to perform extremely well with strategies of divesting lower margin assets while investing in core mineral assets. The company is also focused on reducing debt load, thereby strengthening its financial position. For fiscal 2021, the stock carrying a Zacks Rank #2 (Buy), has witnessed upward earnings estimate revisions over the past 30 days.
Price and Consensus: PHX
DT Midstream, Inc: With a portfolio of natural gas midstream interstate pipelines and intrastate pipelines, the company has secured handsome cashflows from its long-term contracts. DT Midstream has a strong balance sheet with no maturities of huge debt for as long as seven years. In the past 30 days, the #2 Ranked stock has witnessed upward earnings estimate revisions for 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: DTM
Hess: Headquartered in New York, Hess is a leading upstream firm with footprint in Bakken, Gulf of Mexico and offshore Guyana. The company strongly believes that its position in Guyana is strong enough to generate growth in long-term cashflows. For 2021, the stock carrying a Zacks Rank #3 (Hold), has seen no earnings estimate revision in the past seven days. For the next year, the stock has witnessed upward earnings estimate revisions over the same time frame.
Price and Consensus: HES
Marathon Oil: Headquartered in Houston, TX, Marathon Oil is an explorer and producer with strong focus on the United States. The company’s differentiated business model has enabled it to generate significant free cash flows that will be used to lower debt burden. The company’s strong and sustainable business model has also enabled it to raise its quarterly base dividend. The #3 Ranked stock has seen no earnings estimate revision for 2021 in the past seven days. For the next year, the company has witnessed upward earnings estimate revisions over the same time frame.
Price and Consensus: MRO
Occidental Petroleum: Headquartered in Houston, TX, Occidental Petroleum is an oil and natural gas explorer with presence in the midstream energy business. Apart from additional cost-saving measures, the company has been capturing acquisition cost synergies, aiding its bottom line. The stock has seen upward earnings estimate revisions for its 2021 bottom line over the past seven days. The stock, with a Zacks Rank of 3, is likely to see earnings growth of 128.1% in 2021.
Price and Consensus: OXY