The U.S. oil production is expected to witness continued growth this year and beyond, driven by rising oil prices and high energy demand worldwide, creating several growth opportunities for companies offering energy services.
Given the industry’s rosy prospects, quality energy stocks NOW Inc. (DNOW), MRC Global Inc. (MRC), and Solaris Oilfield Infrastructure, Inc. (SOI) could be solid buys this week.
Last month, the world’s major crude exporter Saudi Arabia announced extension of its voluntary oil production cut of 1 million barrels per day (b/d) through the end of 2023. Fellow heavyweight oil producer Russia also extended its 300,000 b/d reduction of exports until the year-end.
Before pulling back from those levels, Oil prices surged to their highest mark in more than a year two weeks earlier due to scarce supply and inventory supplies. The U.S. West Texas Intermediate futures touched $95.03 a barrel, marking the highest since August 2022. Brent crude also hit the highest level since November last year.
Further, as per U.S. Energy Information Administration (EIA) forecast, Brent crude oil price could average $93 per barrel during the fourth quarter of 2023, an increase from $86/b in August. EIA expects the price to average $87 a barrel by the second half of next year.
According to the latest International Energy Agency (IEA) Oil Market Report (OMR), global oil demand remains on track to rise by 2.2 million b/d year-over-year to 101.8 million b/d in 2023, fueled by resurgent Chinese consumption, jet fuel, and petrochemical feedstocks.
Higher oil prices, robust demand for oil and gas, and solid well productivity are major drivers for continued growth in domestic oil production. In its September Short-Term Energy Outlook, EIA forecast U.S. crude oil production to average a record high of 12.8 million b/d this year and 13.2 million b/d in 2024.
As per a report by Consegic Business Intelligence, the global oilfield services market is expected to reach $468.58 billion by 2023, growing at a CAGR of 5.9%. growing adoption of oilfield services for drilling is proliferating the market’s growth.
In addition, technological advancements in the oil and gas industry led to the development of efficient and cost-effective drilling, exploration, and production techniques. This has increased the demand for specialized oilfield services.
In light of these favorable trends, let’s look at the fundamentals of the three best Energy - Services stocks, beginning with number 3.
Stock #3: MRC Global Inc. (MRC)
MRC is a global distributor of pipes, valves, fittings, and other infrastructure products and services to energy, industrial, and gas utility end-markets. The company offers ball, butterfly, globe, check, needle, and plug valves; valve modification services; carbon steel fittings and flanges; natural gas distribution products; and oilfield and industrial supplies and equipment.
On September 27, MRC announced that its subsidiary, MRC Global (US) Inc. extended its Enterprise Framework Agreement with Shell plc (SHEL) until 2028. Under this global agreement, MRC Global would remain a key supplier of SHEL’s pipe, valves, and fittings; and ad-hoc valve actuation services for its upstream, midstream, and downstream assets.
Over the past three years, MRC’s revenue has grown at a CAGR of 4.4%. The company’s EBIT and normalized net income have increased at CAGRs of 77.3% and 321.7%, respectively, over the same timeframe.
In the second quarter that ended June 30, 2023, MRC’s sales increased 2.7% year-over-year to $871 million and its gross profit rose 15.9% from the year-ago value to $175 million. The company’s operating income came in at $45 million, up 45.2% from the prior year’s quarter.
Additionally, the company’s net income attributable to common stockholders and earnings per common share were $18 million and $0.21, increases of 125% and 133.3% year-over-year, respectively. Also, cash provided by operations was $20 million during the second quarter.
Analysts expect MRC’s revenue for the fiscal year (ending December 2023) to increase 7.1% year-over-year to $3.60 billion. The consensus EPS estimate of $1.20 for the ongoing year indicates a marginal increase from the prior year. Moreover, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
MRC’s shares have gained 3.1% over the past six months and 21.3% over the past year to close the last trading session at $10.08.
MRC’s sound fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Momentum and a B for Growth and Value. It has ranked #12 in the 48-stock Energy - Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MRC’s ratings for Sentiment, Quality, and Stability here.
Stock #2: Solaris Oilfield Infrastructure, Inc. (SOI)
SOI designs and manufactures mobile proppant management systems that are used to unload, store, and dispense proppant, water, and chemicals at oil and natural gas well sites. Also, the company develops Railtronix, an inventory management software solution and offers AutoBlend, an integrated electric blender; fluid management systems; and proprietary Solaris Lens software.
On August 15, SOI’s Board of Directors declared a quarterly cash dividend of $0.11 per share of Class A common stock, paid on September 15, 2023, to holders of record as of September 5, 2023. This represents Solaris’ 20th consecutive quarterly dividend. The company’s annual dividend of $0.44 translates to a yield of 4.5% at the current share price.
During the second quarter, the company repurchased 1.4 million Class A common stock (3% of total outstanding shares). Nearly $24 million remains available under the $50 million share repurchase authorization announced in the first quarter of 2023.
“Since we began returning cash to shareholders in 2018, we have cumulatively returned $148 million through dividends and share repurchases. We expect to generate meaningful cash flow as our budgeted growth capital spending slows, allowing us to continue executing on our enhanced shareholder return framework,” SOI’s Chairman and CEO, Bill Zartler commented in the latest quarterly release.
Over the past three years, the company’s revenue has increased at a CAGR of 23.3%. Its EBITDA and total assets have grown at a CAGR of 6.6% and 4.9%, respectively. Also, SIO’s net income and EPS have increased at respective CAGRs of 147.9% and 172% over the same period.
SOI’s operating income increased 52.9% year-over-year to $15.78 million for the second quarter that ended June 30, 2023. Its adjusted EBITDA rose 27.3% from the year-ago value to $26.83 million. The company’s net income grew 47.7% from the prior year’s quarter to $12.24 million.
Furthermore, the company’s EPS of class A common stock came in at $0.24, an increase of 50% year-over-year. As of June 30, 2023, its cash and cash equivalents were $9.37 million, compared to $8.84 million as of December 31, 2022.
Street expects SOI’s EPS and revenue for the fiscal year 2023 to increase 34.2% and 0.4% year-over-year to $1.02 and $321.40 million, respectively. Also, the company has topped the consensus EPS estimates in all four trailing quarters, which is impressive.
For the fiscal year 2024, the company’s EPS and revenue are expected to grow 66.1% and 15.3% from the previous year to $1.69 and $370.44 million, respectively.
SOI’s stock has gained 13% over the past six months to close the last trading session at $9.77.
SOIC’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Sentiment. It is ranked #9 of 48 stocks within the same industry.
To see additional POWR Ratings of SOI for Stability, Growth, Value, and Quality, click here.
Stock #1: NOW Inc. (DNOW)
DNOW distributes downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations. It offers its products under the DistributionNOW and DNOW brand names. It serves customers through a network of nearly 170 locations in upstream, midstream, and downstream sectors.
DNOW’s EBITDA has increased at a CAGR of 472.9% over the past three years. Also, the company’s total assets have grown at a CAGR of 9.9% over the same timeframe.
For the second quarter that ended June 30, 2023, DNOW’s revenue increased 10.2% year-over-year to $594 million. Its operating profit rose 24.1% from the year-ago value to $36 million. In addition, net income and EPS attributable to DNOW stockholders came in at $34 million and $0.31, increases of 30.8% and 34.8% from the previous year’s quarter, respectively.
In addition, the company generated a strong free cash flow of $79 million during the quarter. As of June 30, 2023, its cash and cash equivalents were $203 million, with long-term debt at zero and total liquidity of approximately $584 million.
Analysts expect DNOW’s revenue for the fiscal year (ending December 2023) to increase 10.1% year-over-year to $2.35 billion. The company’s EPS for the current year is estimated to grow 2.6% year-over-year to $0.98. Also, the company surpassed the consensus revenue estimates in each of the four trailing quarters.
The stock has surged 8% over the past six months and 2.5% over the past year to close the last trading session at $11.62.
DNOW’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
DNOW has an A grade for Momentum and a B for Sentiment, Value, and Quality. It is ranked #2 out of 47 stocks in the Energy - Services industry.
Click here to access additional DNOW ratings for Growth and Stability.
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DNOW shares were unchanged in premarket trading Thursday. Year-to-date, DNOW has declined -8.50%, versus a 12.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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