Oil price has again surged after falling more than 9% early this month, and thus is highly favorable for exploration and production operations. Many analysts and economists opine that even if the United States faces recession this year, the impact will be mild. Thus, the outlook for the Zacks
Oil and Gas Integrated International industry is bright. The long-term prospects for upstream, midstream and downstream operations of international integrated energy players appear encouraging. Exxon Mobil Corporation ( XOM Quick Quote XOM - Free Report) , Chevron Corporation ( CVX Quick Quote CVX - Free Report) , Shell plc ( SHEL Quick Quote SHEL - Free Report) , BP plc ( BP Quick Quote BP - Free Report) and Eni SpA ( E Quick Quote E - Free Report) are well-positioned to make the most of the promising business environment. About the Industry
The Zacks Oil and Gas Integrated International industry covers companies primarily involved in upstream, midstream and downstream operations. These companies have upstream businesses in the United States (including prolific shale plays and the deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. Midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. In downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities involve chemical businesses that manufacture raw materials for making plastics. The integrated players are now gradually focusing on renewables, leading to the energy transition. The firms aim to lower emissions from operations and cut the carbon intensity of the products sold.
3 Trends Shaping the Future of the Oil & Gas Integrated International Industry
Crude oil price is again trading above the $80 per barrel psychological mark. Thus, a favorable commodity pricing scenario will continue to aid the upstream business of international integrated energy players. Oil Price Remains Healthy: With the possibility of upstream energy companies adding more rigs, oil and gas production is expected to increase further. This will likely boost the demand for pipeline and storage assets since more commodities will be needed to be transported and stored. Importantly, the midstream business has lower exposure to commodity price volatility since shippers generally book pipeline assets for the long term, thereby generating stable fee-based revenues. Sturdy Midstream Demand:
International integrated energy companies are gradually investing in the renewable business. Thus, by diversifying operations, companies will be able to capitalize on the mounting demand for cleaner energy. Business Diversification: Zacks Industry Rank Indicates Encouraging Outlook
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks
Oil - Energy sector. It carries a Zacks Industry Rank #66, which places it in the top 26% of more than 250 Zacks industries.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates impressive 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Before we present a few international integrated energy stocks that you may want to consider or keep an eye on, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Outperforms Sector and S&P 500
The Zacks Oil and Gas Integrated International industry has outperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has rallied 30.7% over this period against the S&P 500’s decline of 13.8% and the broader sector’s growth of 21.6%.
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 Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) 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 EV/EBITDA, the industry is currently trading at 3.14X, lower than the S&P 500’s 11.87X. It is also below the sector’s trailing-12-month EV/EBITDA of 3.20X.
Over the past five years, the industry has traded as high as 7.47X, as low as 2.57X, with a median of 4.88X.
Trailing 12-Month EV/EBITDA Ratio
5 Integrated International Stocks Moving Ahead of the Pack
BP: The British energy giant has been generating handsome returns from refining and marketing operations, thanks to the reopening of the economies. On the dividend front, BP expects that if the oil price trades around $60 per barrel, it will be able to hike its dividend per ordinary share by around 4% annually through 2025. Investors applaud BP since it also expects to reward shareholders with stock buybacks. The company, currently carrying a Zacks Rank #3 (Hold), believes it will be able to buy back shares worth $4 billion annually through 2025 if the oil price hovers around $60 per barrel. Price and Consensus: BP Chevron: Chevron is also a leading integrated energy player with operations worldwide. Apart from a strong balance sheet, it has a solid capital discipline that will help it tide over volatile commodity prices. The energy major’s conservative capital spending will probably help it generate considerable cash flow, even in an unstable business scenario. The primary growth driver for Chevron, at least in the near term, is its low-cost Permian projects. The #3 Ranked stock has seen upward earnings estimate revisions for 2023 in the past seven days. Price and Consensus: CVX Eni: Eni’s energy business is spread worldwide, with a strong upstream presence. In the Ivory Coast, it made major oil and gas discoveries. The company, carrying a Zacks Rank #2 (Buy), has set an ambitious goal to fully decarbonize its products and processes. Over the past seven days, Eni has witnessed upward estimate revisions for 2023 earnings per share. Price and Consensus: E Exxon Mobil: ExxonMobil is among the largest integrated energy companies in the world. The energy major can rely on its strong balance sheet to withstand any business turmoil. ExxonMobil is banking on low-cost project pipelines centered around the Permian — the most prolific basin in the United States — and offshore Guyana resources. The stock, having a Zacks Rank of 3 at present, has seen upward estimate revisions for 2023 earnings in the past seven days. Price and Consensus: XOM Shell: Being a leading player in liquefied natural gasacross the globe, Shell’s business prospects seem bright. In the energy transition front, the company is playing a crucial role, setting an ambitious goal of achieving a net-zero-emissions energy business by 2050 or before. For 2022, SHEL, with a Zacks Rank of 3, is likely to see earnings growth of 106.5%. Price and Consensus: SHEL