Oil and gas prices soared considerably last year owing to increased demand and supply disruptions aggravated by the Russia-Ukraine war. While macroeconomic headwinds dampened the stock market's overall performance, the energy sector outperformed the broader market for most of 2022. The Energy Select Sector SPDR Fund (XLE) gained 38.4% over the past year, while the S&P 500 index declined 5.9%.
According to the International Energy Agency (IEA), China's reopening following the lifting of its COVID-19 restrictions could increase global oil demand to a record high of 101.7 million barrels per day (bpd) this year, up 1.9 million bpd from 2022. Although energy prices have recently retreated from their peaks, they are expected to climb again this year as demand recovers and supply remains constrained.
Following a year of fluctuating fossil fuel prices amid the Russia-Ukraine war, some of the world’s biggest oil and gas firms are prepared to announce record yearly profits. The energy giants are anticipated to utilize their unexpected gains to reward shareholders with greater dividends and share buybacks.
Marathon Petroleum Corporation (MPC)
MPC is a downstream energy company specializing in refining petroleum products, marketing, retail, and midstream operations. The company operates through two segments, Refining & Marketing and Midstream transport.
On September 21, 2022, MPC announced the closing of its joint venture with Neste for the Martinez renewables project. The partnership is structured as a 50/50 joint venture, with Neste contributing a total of $1 billion, including half of the overall project development expenses, estimated to be $1.2 billion by the project's completion.
This deal demonstrates MPC's dedication to supplying low-carbon feedstocks in support of California's Low Carbon Fuel Standard objectives.
In terms of forward non-GAAP P/E, MPC is trading at 5.20x, 35.2% lower than the industry average of 8.03x. Moreover, its forward EV/EBITDA multiple of 3.68 is 32.1% lower than the industry average of 5.42.
For the fiscal 2022 third quarter that ended September 30, MPC’s total revenues and other income grew 44.8% year-over-year to $47.24 billion. Its income from continuing operations rose 399% from the year-ago value to $6.69 billion. Its adjusted EBITDA from continuing operations increased 182.9% year-over-year to $6.83 billion.
Furthermore, the adjusted net income attributable to MPC came in at $3.86 billion, up 731.3% year-over-year, and its adjusted EPS stood at $7.81, reflecting a 970% rise from the prior year’s period.
The company pays a $3 per share dividend annually, which translates to a 2.26% yield on the current price level. MPC’s four-year average dividend yield is 4.13%, and its dividend payments have grown at a 10.4% CAGR over the past five years.
Analysts expect MPC’s revenue for the fiscal year that ended December 2022 to come in at $177.74 billion, indicating a 47% year-over-year improvement. Moreover, the company’s EPS for the same year is expected to increase by 942.1% from the previous year to $25.53. Moreover, MPC surpassed its consensus EPS in all four trailing quarters, which is impressive.
The stock has gained 47.6% over the past six months and 84.8% over the past year to close the last trading session at $132.85.
MPC’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates 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 Quality and a B for Growth. Within the B-rated 93 stock Energy - Oil & Gas industry, it is ranked #8.
Beyond what we stated above, we also have MPC’s ratings for Value, Stability, and Sentiment. Get all MPC ratings here.
Valero Energy Corporation (VLO)
VLO is a multinational manufacturer and distributor of petrochemical and transportation fuels. The company operates in three segments: Refining; Renewable Diesel; and Ethanol. It manufactures asphalt, blendstocks, jet fuel, diesel, and other refined petroleum products.
On September 26, 2022, VLO reduced its debt by approximately $1.25 billion through previously announced tender offers for various series of VLO's senior notes, which the company funded with cash on hand. These accords reduced VLO's debt by over $3.60 billion when combined with debt reduction and refinancing agreements concluded in the second half of 2021 and the first half of 2022.
In terms of forward non-GAAP P/E, the stock is currently trading at 6.69x, which is 16.7% lower than the industry average of 8.03x. Also, the stock’s forward EV/Sales multiple of 0.41 is 77.6% lower than the 1.86 industry average.
For the fiscal fourth quarter that ended December 31, 2022, VLO’s revenue grew 16.3% year-over-year to $41.75 billion, and its operating income rose 169.5% from the prior year’s period to $4.30 billion. The company’s net income stood at $3.23 billion, up 191.2% year-over-year, while its adjusted EPS rose 250.6% year-over-year to $8.45.
VLO pays a $3.92 per share dividend annually, which translates to a 2.74% yield on the current price level. The company’s dividend payments have grown at a 7% CAGR over the past five years, and its four-year average dividend yield is 5.04%.
The consensus revenue estimate of $40.03 billion for the fiscal first quarter ending March 2023 indicates a 3.9% year-over-year improvement. The consensus EPS estimate of $6.59 for the same year reflects a rise of 185.1% from the prior year’s quarter. Furthermore, VLO surpassed its consensus EPS in all four trailing quarters.
Shares of VLO have gained 28.4% over the past six months and 74.7% over the past year to close the last trading session at $143.21.
VLO’s strong prospects are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
VLO also has an A grade for Momentum and a B for Growth and Quality. Within the same industry, it has ranked #3 of 93 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can access VLO’s Sentiment, Stability, and Value ratings here.
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MPC shares were trading at $130.54 per share on Monday afternoon, down $2.31 (-1.74%). Year-to-date, MPC has gained 12.16%, versus a 5.17% 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.2 Energy Stocks to Buy in January if You Haven't Already appeared first on StockNews.com