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Bull of the Day: Tenaris S.A. (TS)

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Tenaris S.A. (TS - Free Report) has sold off on worries about the energy industry. But this Zacks Rank #1 (Strong Buy) is expected to grow its earnings by the double digits this year.

Tenaris is headquartered in Luxembourg. It manufactures pipes and related services for the world's energy industry. It's manufacturing system integrates steelmaking, pipe rolling and forming, heat treatment, threading and finishing across 16 countries. Tenaris has employees in more than 30 countries worldwide.

It is in the Zacks Industry of Steel and Pipes, which is currently ranked in the top 5% of all Zacks Industries.

Increased Free Cash Flow in 2022

On Feb 15, 2023, Tenaris reported its fourth quarter and full year results. It missed on the Zacks Consensus for the second quarter in a row, but just by a penny, reporting $1.37 versus the Zacks Consensus of $1.38. In both quarters it missed by just $0.01.

Sales rose 76% in Q4 to $3.62 billion from $2.057 billion a year ago and were also up 22% sequentially, due to further increases in shipments and realized prices in most regions. It was a record quarterly results.

Free cash flow in the quarter rose to $416 million after capex payments of $108 million and the operating working capital days declined to 128.

After paying a dividend out for $201 million in Nov 2022, Tenaris' net cash position increased to $921 million as of Dec 31, 2022.

For the full year, sales rose 80% to $11.763 billion from $6.521 billion due to the strong recovery of oil and gas drilling activity in the Americas, a more delayed recovery in Eastern Hemisphere activity, which is now picking up steam, and the solid contribution of most of its market and product segments.  

Analysts Bullish About 2023

With drilling activity on the rise globally in the energy industry, the analysts are bullish.

6 estimates have been raised for 2023 in the last 60 days, pushing the Zacks Consensus Estimate up to $6.12 from $5.32 during that time. This is the reason Tenaris has the highest of the Zacks Rank recommendations, the #1 (Strong Buy). The analysts are all in agreement and are all bullish.

That's earnings growth of 41.3% as the company made just $4.33 last year.

The Stock is Cheap

Shares of Tenaris have fallen 19.2% year-to-date as crude prices have fallen. With the earnings estimates expected to jump higher, the stock is cheaper than its ever been, with a forward P/E of just 4.6.

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It's also shareholder friendly and has to do something with all of its free cash flow. It has proposed an annual dividend, which will still need to be approved by the shareholders, of $0.34 per share, or $0.68 per ADS, or approximately $401 million. It will be paid on May 24, 2023, to shareholders of record as of May 23, 2023. It goes ex-dividend on May 22, 2023.

If investors don't want to own the energy companies directly, a steel pipe manufacturer like Tenaris may be the way to invest instead.

[In full disclosure, the author of this article owns shares of Tenaris in the Zacks Value Investor portfolio.]

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