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Oil price has returned to its glorious days and global fuel demand has recovered significantly from the coronavirus-hit low level. Thus, with economies reopening and people socializing and going to work, the outlook for the Zacks Oil and Gas Integrated International industry is brightening up.
It is now a clear picture that the business prospects for upstream, midstream and downstream operations of international integrated energy players are improving at a significant pace. Among the players Exxon Mobil Corp.,Chevron Corp., BP plc, and Eni SpAare well positioned to make the most of the highly favorable 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.
Under downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies' downstream activities involve chemical businesses that manufacture raw materials used for making plastics. The integrated players are now gradually focusing on renewables, leading to energy transition. In fact, the firms aim to lower emissions from operations and cut the carbon intensity of the products sold.
4 Trends Shaping the Future of the Oil & Gas Integrated International Industry
Oil Price Skyrockets: The price of West Texas Intermediate crude, trading at more than $100 per barrel, has improved drastically over the past year. The significant rise in oil price is owing to Russia's violent and unprovoked invasion of Ukraine.
The crude price rally is also being backed by a strong recovery of global energy demand with the reopening of economies, as coronavirus cases are quite low across the world and vaccines are being given at a massive scale. Overall, a favorable business scenario will continue to aid the upstream business of international integrated energy players.
Sturdy Midstream Demand: 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.
Recovered Downstream Business: Since the countries have been ramping up the rollout of coronavirus vaccines, this will encourage more people to go to offices and travel. With social-distancing measures becoming flexible, the demand for gasoline, diesel fuel and jet fuel will increase.
Business Diversification: International integrated energy companies are gradually investing money in the renewable business. Thus, by diversifying operations, companies will be able to capitalize on the mounting demand for cleaner energy.
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 #18, which places it at the top 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 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 for your portfolio, 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 as well as the Zacks S&P 500 composite over the past year.
The industry has gained 31.9% over this period compared with the S&P 500 and the broader sector's growth of 8.7% and 25%, respectively.
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 4.78X, lower than the S&P 500's 14.10X. It is also below the sector's trailing-12-month EV/EBITDA of 4.90X.
Over the past five years, the industry has traded as high as 8.84X, as low as 2.92X, with a median of 5.16X.
4 Integrated International Stocks Moving Ahead of the Pack
BP plc: 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 the dividend per ordinary share by around 4% annually through 2025.
Investors applaud BP since it also expects to reward shareholders with stock buybacks. BP, currently carrying a Zacks Rank #3 (Hold), believes that it will be able to buy back shares worth $4 billion annually through 2025, if oil price hovers around $60 per barrel.
Chevron Corporation: Chevron is also a leading integrated energy player, with operations across the world. Apart from a strong balance sheet, Chevron has a solid capital discipline that will help it tide over volatile commodity prices. The energy major's conservative capital spending will probably help the company generate considerable cash flow, even if the business scenario is unstable.
The primary growth driver for Chevron, at least in the near term, is its low-cost Permian projects. Chevron, presently sporting a Zacks Rank #1 (Strong Buy), has seen upward earnings estimate revisions for 2022 in the past seven days. You can see the complete list of today's Zacks #1 Rank stocks here.
Eni SpA: Eni's energy business is spread worldwide, with a strong upstream presence. In the Ivory Coast, Eni made major oil and gas discoveries. The #3 Ranked company's refining and marketing business is recovering, with the reopening of economies across the world. Eni has set an ambitious goal to fully decarbonize its products and processes. Over the past seven days, Eni has witnessed upward estimate revisions for 2022 earnings per share.
Exxon Mobil Corp.: 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 Permian — the most prolific basin in the United States — and offshore Guyana resources. ExxonMobil, having a Zacks Rank of 1 at present, has seen upward estimate revisions for 2022 earnings in the past seven days.
Just Released: Zacks Top 10 Stocks for 2022
In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022?
From inception in 2012 through 2021, the Zacks Top 10 Stocks portfolios gained an impressive +1,001.2% versus the S&P 500's +348.7%. Now our Director of Research has combed through 4,000 companies covered by the Zacks Rank and has handpicked the best 10 tickers to buy and hold. Don't miss your chance to get in...because the sooner you do, the more upside you stand to grab.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Exxon Mobil, Chevron, BP, and Eni SpA
For Immediate Release
Chicago, IL – March 14, 2022 – Today, Exxon Mobil Corp. (XOM - Free Report) , Chevron Corp. (CVX - Free Report) , BP plc (BP - Free Report) and Eni SpA (E - Free Report) .
Industry: Oil & Gas - Integrated
Link: https://www.zacks.com/commentary/1880714/4-energy-stocks-from-the-promising-integrated-oil-industry
Oil price has returned to its glorious days and global fuel demand has recovered significantly from the coronavirus-hit low level. Thus, with economies reopening and people socializing and going to work, the outlook for the Zacks Oil and Gas Integrated International industry is brightening up.
It is now a clear picture that the business prospects for upstream, midstream and downstream operations of international integrated energy players are improving at a significant pace. Among the players Exxon Mobil Corp.,Chevron Corp., BP plc, and Eni SpAare well positioned to make the most of the highly favorable 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.
Under downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies' downstream activities involve chemical businesses that manufacture raw materials used for making plastics. The integrated players are now gradually focusing on renewables, leading to energy transition. In fact, the firms aim to lower emissions from operations and cut the carbon intensity of the products sold.
4 Trends Shaping the Future of the Oil & Gas Integrated International Industry
Oil Price Skyrockets: The price of West Texas Intermediate crude, trading at more than $100 per barrel, has improved drastically over the past year. The significant rise in oil price is owing to Russia's violent and unprovoked invasion of Ukraine.
The crude price rally is also being backed by a strong recovery of global energy demand with the reopening of economies, as coronavirus cases are quite low across the world and vaccines are being given at a massive scale. Overall, a favorable business scenario will continue to aid the upstream business of international integrated energy players.
Sturdy Midstream Demand: 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.
Recovered Downstream Business: Since the countries have been ramping up the rollout of coronavirus vaccines, this will encourage more people to go to offices and travel. With social-distancing measures becoming flexible, the demand for gasoline, diesel fuel and jet fuel will increase.
Business Diversification: International integrated energy companies are gradually investing money in the renewable business. Thus, by diversifying operations, companies will be able to capitalize on the mounting demand for cleaner energy.
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 #18, which places it at the top 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 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 for your portfolio, 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 as well as the Zacks S&P 500 composite over the past year.
The industry has gained 31.9% over this period compared with the S&P 500 and the broader sector's growth of 8.7% and 25%, respectively.
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 4.78X, lower than the S&P 500's 14.10X. It is also below the sector's trailing-12-month EV/EBITDA of 4.90X.
Over the past five years, the industry has traded as high as 8.84X, as low as 2.92X, with a median of 5.16X.
4 Integrated International Stocks Moving Ahead of the Pack
BP plc: 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 the dividend per ordinary share by around 4% annually through 2025.
Investors applaud BP since it also expects to reward shareholders with stock buybacks. BP, currently carrying a Zacks Rank #3 (Hold), believes that it will be able to buy back shares worth $4 billion annually through 2025, if oil price hovers around $60 per barrel.
Chevron Corporation: Chevron is also a leading integrated energy player, with operations across the world. Apart from a strong balance sheet, Chevron has a solid capital discipline that will help it tide over volatile commodity prices. The energy major's conservative capital spending will probably help the company generate considerable cash flow, even if the business scenario is unstable.
The primary growth driver for Chevron, at least in the near term, is its low-cost Permian projects. Chevron, presently sporting a Zacks Rank #1 (Strong Buy), has seen upward earnings estimate revisions for 2022 in the past seven days. You can see the complete list of today's Zacks #1 Rank stocks here.
Eni SpA: Eni's energy business is spread worldwide, with a strong upstream presence. In the Ivory Coast, Eni made major oil and gas discoveries. The #3 Ranked company's refining and marketing business is recovering, with the reopening of economies across the world. Eni has set an ambitious goal to fully decarbonize its products and processes. Over the past seven days, Eni has witnessed upward estimate revisions for 2022 earnings per share.
Exxon Mobil Corp.: 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 Permian — the most prolific basin in the United States — and offshore Guyana resources. ExxonMobil, having a Zacks Rank of 1 at present, has seen upward estimate revisions for 2022 earnings in the past seven days.
Just Released: Zacks Top 10 Stocks for 2022
In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022?
From inception in 2012 through 2021, the Zacks Top 10 Stocks portfolios gained an impressive +1,001.2% versus the S&P 500's +348.7%. Now our Director of Research has combed through 4,000 companies covered by the Zacks Rank and has handpicked the best 10 tickers to buy and hold. Don't miss your chance to get in...because the sooner you do, the more upside you stand to grab.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.