The energy sector continues to be the best-performing sector in 2022 and has managed to remain in the green despite several macroeconomic shocks. As a result of Western sanctions imposed on Russia–the largest natural gas provider in Europe–and surging demand, natural gas prices have increased markedly this year. On May 3, U.S. natural gas prices reached their highest level since 2008,climbing more than 9% to a session high $8.17 per MMBtu, followed by a 30% increase in April.
Over the past few weeks, increased LNG exports and relatively high electricity demand have pushed U.S. natural gas prices higher. Gas prices have soared 4.4% of late and are expected to surge more than 25% this summer. The soaring gas prices have boosted major energy companies' profits and share prices. The bullish sentiment surrounding the energy sector is evident in the Energy Select Sector SPDR ETF’s (XLE) 59.3% gains over the past year.
Amid surging natural gas prices, we believe betting on the stocks of quality natural gas companies Cheniere Energy, Inc. (LNG) and Phillips 66 (PSX) could be profitable.
Cheniere Energy, Inc. (LNG)
LNG in Houston, Tex., is an energy infrastructure company that engages in liquefied natural gas (LNG) related businesses in the U.S. In addition, it is involved in the LNG and natural gas marketing business. The company owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana, and the Corpus Christi LNG terminal near Corpus Christi, Tex. It also owns the Creole Trail pipeline and operates the Corpus Christi pipeline.
Earlier this month, LNG’s subsidiary, Corpus Christi Liquefaction Stage III, LLC, entered a long-term Integrated Production Marketing (IPM) gas supply agreement with ARC Resources U.S. Corp, a subsidiary of ARC Resources, Ltd., to sell 140,000 MMBtu per day of natural gas to Corpus Christi Stage III for 15 years. This agreement is expected to support the Corpus Christi Stage III Project, which is being developed to include seven midscale liquefaction trains with a total expected production capacity of 10 million tons per annum.
In its fiscal 2022 first quarter, ended March 31, 2022, LNG's total revenues increased 142.2% year-over-year to $7.48 billion, and its LNG revenues grew 144.7% year-over-year to $7.34 billion. Its consolidated adjusted EBITDA rose 117.1% from its year-ago value to $3.15 billion. In addition, the company’s cash and cash equivalents and total current assets amounted to $2.49 billion and $5.71 billion, respectively, as of March 31, 2022.
The$5.94 billion consensus revenue estimate for the fiscal 2022 second quarter, ending June 30, 2022, represents 97% growth from the same period in 2021. The $3.19 consensus EPS estimate for the current quarter indicates a 4,265.3% year-over-year rise.
The stock has gained 27.9% in price year-to-date and 54.8% over the past year. It closed yesterday's trading session at $131.11.
LNG’s POWR Ratings reflect a strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
LNG has a grade of A for Momentum and a B for Growth and Quality. It is ranked #32 of 100 stocks in the B-rated Energy - Oil & Gas industry. Click here to see LNG’s POWR Ratings for Value, Stability, and Sentiment.
Phillips 66 (PSX)
PSX in Houston, Tex., is an energy manufacturing and logistics company. It operates through four segments: Midstream; Chemicals; Refining; and Marketing and Specialties (M&S). It transports, stores, exports, and markets crude oil, natural gas liquids, and refined petroleum products. It also markets ethylene and other olefin products, aromatics and styrenics products, and specialty chemical products. The company resales and markets refined petroleum products primarily in the U.S. and Europe.
On May 11, PSX’s board of directors declared a 97 cent ($0.97) per share quarterly dividend on PSX common stock, registering a 5%increase. “This dividend increase, along with the recently announced resumption of our share repurchase program, demonstrates our continuing commitment to shareholder returns. We have increased the dividend 11 times since our inception in 2012, resulting in an 18% compound annual growth rate. Additionally, we paid down $1.45 billion of debt in April and plan to repay additional debt this year,” said Greg Garland, Chairman, and CEO of PSX.
PSX's Chemicals adjusted pre-tax income increased 115.2% year-over-year to $396 million in its fiscal 2022 first quarter, ended March 31, 2022. Its Refining adjusted pre-tax income rose 113.6% year-over-year to $140 million, while its Marketing and Specialties adjusted pre-tax income improved 9% from the prior-year period to $316 million. In addition, the company’s adjusted earnings and adjusted earnings per share of common stock came in at $595 million and $1.32, respectively, registering an increase of 216.9% and 213.8% year-over-year.
The $36.04 billion consensus revenue estimate for its fiscal 2022 second quarter, ending June 30, 2022, represents a 29.3% improvement from the same period last year. Analysts expect PSX’s EPS for the current quarter to increase 359.7% year-over-year to $3.40. The company has an impressive revenue and earnings history; it has topped the consensus revenue and EPS estimates in each of the trailing four quarters.
PSX’s shares have increased 18.9% in price over the past month and 28.8% over the past six months to close yesterday’s trading session at $95.08.
PSX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B grade, which equates to a Buy in our proprietary rating system.
PSX has an A grade of A for Growth and Momentum. Within the Gas industry, it is ranked #17 of 100 stocks. To see additional POWR Ratings (Sentiment, Value, Quality, and Stability) for PSX, click here.
LNG shares were trading at $129.93 per share on Tuesday afternoon, down $1.18 (-0.90%). Year-to-date, LNG has gained 28.77%, versus a -17.38% 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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