The energy sector is expected to grow significantly due to geopolitical tensions, supply constraints and increasing global demand for natural gas and crude oil. Therefore, it might be worth adding the fundamentally strong energy stocks Enterprise Products Partners (EPD), Koninklijke Vopak (VOPKY) and VAALCO Energy (EGY) to your portfolio. Continue reading.
The outlook for the energy sector appears optimistic as crude oil prices are expected to rise due to insufficient supply, stable demand and ongoing geopolitical conflicts in the Middle East. The growth of the energy sector will be driven by the move towards renewable energy sources and technological improvements, which are expected to encourage additional investment and innovation.
Given the industry’s strong outlook, investors might consider buying fundamentally strong energy stocks such as Enterprise Products Partners LP (EPD), Koninklijke Vopak NV (VOPKY), and VAALCO Energy, Inc. (EGY). Before we dive deeper into the fundamentals of these stocks, let’s understand what shapes the outlook for the energy sector.
Oil prices have risen amid rising tensions in the Middle East as the war in Gaza continues. Meanwhile, Iran threatened retaliation against Israel over the destruction of its consulate in Syria, helping to keep crude oil prices near six-month highs.
Concerns about the conflict spreading to other countries in the region and OPEC+’s decision to stick with oil supply cuts in the first half of the year could hamper global production, thereby keeping oil prices higher. Additionally, Mexico’s crude oil exports fell by at least 330,000 barrels per day (bpd) in May and Ukraine’s recent attacks on Russian oil refineries have raised concerns about a possible supply shortage.
OPEC has forecast robust fuel consumption in the summer months and maintained its forecast for relatively strong growth in global oil demand in 2024. In its monthly report, OPEC forecast global oil demand will rise by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025.
The global oil and gas industry is expected to reach $65.80 billion by 2032, growing at a CAGR of 15.8%. Rising global energy demand and technological advancements, particularly in emerging markets, are expected to drive the industry. Investor interest in energy stocks is reflected in the Energy Select Sector SPDR Fund (XLE)’s return of 19.5% over the past three months.
Given these encouraging trends, let’s take a look at the fundamentals of the featured energy stocks.
Enterprise Products Partners LP (EPD)
EPD provides midstream energy services worldwide, including natural gas processing, NGL fractionation, crude oil transportation and petrochemical marketing. With extensive pipeline networks and storage facilities, the company serves producers and consumers in various energy sectors.
On February 22, 2024, EPD announced that its subsidiary has entered into a definitive agreement to acquire membership interests in Panola Pipeline Company, LLC from an affiliate of Western Midstream Partners, LP.
The acquisition of Panola Pipeline Company, LLC will expand EPD’s footprint in the Permian Basin region and enhance its ability to transport and store liquid crude oil and natural gas. This strategic move is in line with EPD’s goal of increasing its presence in key energy markets.
On February 21, 2024, EPD announced that certain of its subsidiaries acquired interests in Whitethorn Pipeline Company LLC and Enterprise EF78 LLC from Western Midstream Partners, LP.
These acquisitions will expand EPD’s presence in the Permian Basin and strengthen its position as a leading midstream player in the region. The transactions are expected to enhance EPD’s ability to provide integrated midstream services to customers in the region.
EPD’s return on common equity over the last 12 months was 20.18%, 13.9% higher than the industry average of 17.72%. Likewise, the stock’s return on assets over the last 12 months was 7.79%, 16.7% higher than the industry average of 6.68%. Additionally, the company’s asset turnover ratio over the past 12 months is 0.71x, 37.6% higher than the industry average of 0.52x.
In the fourth quarter ended December 31, 2023, EPD’s revenue increased 7.1% year-over-year to $14.62 billion. The company’s net income and adjusted EBITDA increased 12.8% and 5.2% to $1.60 billion and $2.50 billion, respectively, compared to the year-ago quarter. Adjusted cash flow from operations increased 5.6% to $2.22 billion compared to the same quarter last year.
Street expects EPD’s earnings per share and revenue for the quarter ended March 31, 2024 to rise 4.9% and 11.2% year-over-year to $0.67 billion and $13.84 billion, respectively will rise. Over the past nine months, EPD shares have risen 10.4%, closing the most recent trading session at $29.22.
EPD’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings evaluate stocks based on 118 different factors, each with its own weighting.
EPD has a grade of A for sentiment and a grade of B for growth, value, momentum and stability. Within the A-rated MLPs – Oil & Gas industry, the company ranks 5th out of 24 stocks. To view the EPD quality rating, click here.
Royal Vopak NV (VOPKY)
Headquartered in Rotterdam, Netherlands, VOPKY stores and transports liquid chemicals, gases and oil products for the energy and manufacturing markets worldwide. The company operates LPG and chemical gas, industrial, chemical and oil terminals and owns and operates specialist facilities consisting of tanks, jetties, truck loading stations and pipelines.
VOPKY’s gross profit margin for the last 12 months is 95.67%, 105.6% higher than the industry average of 46.53%. The company’s trailing twelve month net profit margin of 31.67% is 141.2% higher than the industry average of 13.13%. Additionally, its leveraged FCF margin of 9.50% is 42% higher than the industry average of 6.69% over the past 12 months.
For the fourth fiscal quarter ended December 31, 2023, VOPKY’s revenue and EBIT were EUR 352.80 million (US$382.88 million) and EUR 150.20 million (US$163 million), respectively. .
During the same quarter, net income attributable to holders of common stock and earnings per common share increased 23.2% and 22.5%, respectively, to €109 million ($118.29 million) and €0.87, respectively, compared to the prior-year quarter .
For the fiscal year ending December 31, 2025, VOPKY’s revenue is expected to increase 2.8% year-over-year to $1.47 billion. Over the past three months, the stock has risen 21.1%, closing the last trading session at $39.99.
VOPKY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It ranks #6 out of 40 stocks in the A-rated foreign oil and gas industry. It has a grade of B for dynamics, stability and quality. Click here to view VOPKY’s additional Growth, Value and Sentiment ratings.
VAALCO Energy, Inc. (ONE)
EGY is an independent energy company with interests in Gabon, Egypt, Equatorial Guinea and Canada, focused on the exploration, development and production of oil and gas. Its assets include offshore blocks in Gabon, concessions in Egypt, undeveloped land in Equatorial Guinea, and production and working interests in Alberta, Canada.
On March 25, 2024, EGY announced the completion of the agreements and received government approval for the joint operating agreement on the Venus Block P development plan in Equatorial Guinea.
EGY has reached an important milestone in its development plans, including the “Front-End Engineering Design” study, which has expanded its operational portfolio and consolidated its position in Equatorial Guinea’s energy sector.
EGY’s return on assets over the last 12 months was 17.66%, 114.4% higher than the industry average of 8.23%. The company’s trailing 12-month EBIT margin of 34.92% is 56.4% higher than the industry average of 22.33%. Additionally, its leveraged FCF margin of 29.77% over the past 12 months is 345.2% higher than the industry average of 6.69%.
EGY’s revenue increased 54.4% year-over-year to $149.15 million in the fourth quarter ended December 31, 2023. The company’s adjusted earnings increased 102.9% and 94.7% to $38.99 million, or $0.37 per share, from the year-ago quarter. Additionally, Adjusted EBITDA increased 92.5% year-over-year to $95.88 million.
Analysts expect EGY’s revenue and earnings per share for the quarter ended March 31, 2024 to rise 41.4% and 257.1% year-over-year to $113.70 million and $0, respectively. $25 will rise. Shares of EGY have gained 77.9% over the past nine months, closing the most recent trading session at $7.15.
It’s no surprise that EGY has an overall rating of B, which equates to a Buy in our POWR rating system.
It has a grade of B for Growth, Value, Sentiment and Quality. It ranks number 3 out of 83 stocks in the Energy, Oil & Gas industry. Beyond the above, we also rated EGY for momentum and stability. All EGY reviews can be found here.
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EPD shares traded at $29.37 per share on Friday morning, up $0.15 (+0.51%). Year-to-date, EPD has gained 13.59%, while the benchmark S&P 500 index has gained 8.71% over the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, asset management and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in economics, she aims to make complex financial issues understandable for individual investors and help them make the right investment decisions.
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