The global oil industry teeters on the edge of a transformative juncture as OPEC+ members implement voluntary production cuts. Wall Street analysts, optimistic about long-term prospects, foresee substantial gains amid a critical industry undersupply.
To seize this opportunity, it could be wise to add BP p.l.c. (BP), Delek US Holdings, Inc. (DK), and Global Partners LP (GLP) to your portfolio. These fundamentally robust energy stocks, poised for significant December gains, offer strategic potential. Before exploring these stocks, let's examine the industry's unfolding dynamics.
The OPEC+ group’s recent statement stopped short of officially endorsing production cuts. Nevertheless, individual member countries independently declared voluntary reductions, amounting to a collective decrease of 2.2 million barrels per day for the first quarter of 2024.
OPEC's key member, Saudi Arabia, has extended its voluntary 1 million barrels per day production cut until the first quarter of 2024. In tandem, Russia has committed to reducing supply by 300,000 barrels per day in crude and 200,000 barrels per day in petroleum products for the same period, responding to the oil cartel's efforts.
Moreover, Iraq has implemented a reduction of 223,000 barrels per day, the United Arab Emirates has trimmed by 163,000 barrels per day, Kuwait has scaled back by 135,000 barrels per day, Kazakhstan has lowered by 82,000 barrels per day, Algeria has reduced by 51,000 barrels per day, and Oman has trimmed by 42,000 barrels per day.
Analysts at UBS Group AG (UBS) and The Goldman Sachs Group, Inc. (GS) project a potential surge in oil prices by implementing these committed cuts. UBS strategist Giovanni Staunovo anticipates a market deficit, potentially sustaining high oil prices. Meanwhile, GS foresees a mechanical uplift in Brent December 2024 prices.
"We estimate a modest mechanical boost from the extra cut to Brent Dec24 prices of around $4/bbl relative to our prior OPEC+ assumptions," stated GS. The firm also anticipates the group "can maintain Brent oil prices in the $80-$100 range in 2024."
Furthermore, while the Israel-Hamas conflict hasn't directly impacted the physical oil supply, uncertainties surrounding the conflict and global oil conditions may exert upward pressure on crude oil prices in the coming months. This potential increase could also influence other commodity markets.
The U.S. Energy Information Administration (EIA) projects an increase in the Brent crude oil price, a global benchmark, from an average of $90 per barrel in 2023 to an estimated $93 per barrel in 2024. In light of these trends, let’s look at the fundamentals of the three energy stocks.
BP p.l.c. (BP)
Based in London, the United Kingdom, BP spearheads natural gas production, integrated gas and power, onshore and offshore wind power, hydrogen production, and carbon capture and storage. Its segments include Gas & Low Carbon Energy; Oil Production & Operations; and Customers & Products.
BP showcased ongoing strides in transforming into an integrated energy entity in its fiscal third-quarter report. The Tangguh Expansion, BP's third major project in 2023, showed progress in resilient hydrocarbons by adding 3.8mtpa of production capacity to the existing 7.6mtpa facility and successfully producing its first commercial cargo.
In August, 'Bingo,' BP's second central processing facility in the Permian Basin, was successfully brought online. The Murlach oil and gas venture in the North Sea, a two-well redevelopment of the Marnock-Skua field returning to the ETAP hub, also received regulatory permission in September.
In terms of forward non-GAAP P/E, BP is trading at 6.92x, which is 27.4% lower than the industry average of 9.52x. Moreover, its forward EV/Sales and forward EV/EBITDA of 0.66x and 3.29x are 67.1% and 38.3% higher than the 1.99x and 5.34x industry averages, respectively.
For the third quarter that ended September 30, 2023, BP’s profit before taxation increased 269.1% year-over-year to $7.31 billion. Also, its profit for the period and EPS came in at $5.07 billion and $27.59, compared to a loss and loss per share of $1.98 billion and $11.45 in the previous year’s quarter, respectively.
In addition, the company’s cash inflow from operating activities rose 5.5% from the prior year’s quarter to $8.75 billion.
For the fiscal year ending December 2024, BP’s revenue is estimated to marginally grow year-over-year to $217.54 billion. Similarly, the company’s EPS for the next year is expected to rise 6.5% from the prior year to $5.39. The stock has gained 1.5% year-to-date, closing the last trading session at $34.85.
BP’s sound fundamentals are reflected 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.
BP has a B grade for Value, Momentum, and Quality. It is ranked #11 out of 44 stocks within the B-rated Foreign Oil & Gas industry.
In addition to the POWR Ratings I’ve highlighted, you can see BP’s Growth, Sentiment, and Stability ratings here.
Delek US Holdings, Inc. (DK)
DK is involved in the downstream integrated energy sector, operating across three segments: Refining; Logistics, and Retail. The company serves a wide range of customers, including government agencies, independent retail fuel operators, utilities, jobbers, distributors, independent refiners, marketers, and oil firms.
In terms of forward non-GAAP P/E, DK is trading at 6.30x, which is 33.8% lower than the industry average of 9.52x. In addition, the stock’s forward EV/Sales of 0.24x is 87.9% higher than the 1.99x industry average. Furthermore, its forward Price/Sales of 0.10x compares with the 1.38x industry average.
For the third quarter that ended September 30, 2023, DK’s operating income rose 324% year-over-year to $224.70 million. Its net income grew 710.1% from the year-ago value to $136.10 million, while income per share stood at $1.97, indicating a significant rise from the prior year’s quarter.
Furthermore, the company’s cash inflow from operating activities increased 232.3% from the prior year’s period to $432.60 million.
Wall Street expects DK’s EPS to marginally grow annually over the next five years. Shares of DK have gained 9.2% over the past six months to close the last trading session at $25.47.
DK’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
DK has an A grade for Growth and a B for Value and Momentum. It is ranked #14 out of 85 stocks within the Energy - Oil & Gas industry.
Click here to access the additional DK ratings (Stability, Sentiment, and Quality).
Global Partners LP (GLP)
GLP purchases, sells, gathers, blends, stores, and transports petrol and petrol blendstocks, distillates, residual oil, renewable fuels, crude oil, and propane. It also transports petroleum goods and renewable energy via rail from the mid-continent United States and Canada region.
On November 9, GLP entered into an asset purchase agreement with Motiva Enterprises LLC to acquire 25 liquid energy terminals throughout the Atlantic Coast, Southeast, and Texas. GLP has agreed to pay $305.8 million cash for the terminals with a shell capacity of 8.4 million barrels.
GLP currently owns or leases 24 liquid energy facilities across the Northeast, North Dakota and Oregon. The acquisition would expand GLP's terminal capacity and geographic reach to the Atlantic Coast and the U.S. Gulf.
In terms of forward EV/Sales, GLP is trading at 0.16x, which is 91.8% lower than the industry average of 1.99x. Also, its forward Price/Sales of 0.08x is 94.4% lower than the industry average of 1.38x.
During the third quarter that ended September 30, 2023, GLP registered sales of $4.22 billion. Its net income stood at $26.81 million during the same period. In addition, as of September 30, 2023, the company’s cash and cash equivalents amounted to $11.30 million, compared to $4.04 million as of December 31, 2022.
The consensus revenue estimate of $22.19 billion for the fiscal year ending December 2024 reflects a 34.7% year-over-year improvement. Similarly, the consensus EPS estimate of $4.17 for the next year exhibits a 37.2% rise from the previous year. The stock has gained 20.8% over the past six months to close the last trading session at $37.15.
GLP’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
GLP has a B grade for Value and Momentum. It has ranked #11 in the 26-stock A-rated MLPs - Oil & Gas industry.
Click here to access additional GLP ratings for Growth, Stability, Sentiment, and Quality.
What To Do Next?
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BP shares were trading at $34.70 per share on Thursday morning, down $0.15 (-0.43%). Year-to-date, BP has gained 3.85%, versus a 20.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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