Global oil consumption is growing rapidly with rising fuel demand, economic growth, and growing population worldwide, urbanization, and industrialization. Further, continuous demand and supply fluctuations lead to oil prices reaching record levels.
Against this backdrop, it could be wise to invest in fundamentally strong and undervalued energy stocks Valero Energy Corporation (VLO), HF Sinclair Corporation (DINO), and MRC Global Inc. (MRC) with strong upside potential.
The current year has been notable for oil prices with concerning geopolitical tensions in the Middle East, OPEC+’s extension of supply cuts into the second quarter, Ukraine’s drone attacks on Russian oil refineries, and other supply chain disruptions causing the oil prices to rise.
With resilient economic growth and air travel positively supporting fuel usage during summer months, OPEC recently forecasted strong growth in global oil demand in 2024 and 2025. In a monthly report, the Organization of the Petroleum Exporting Countries (OECD), said, world oil demand would rise by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025.
Also, with slowing inflation coupled with the positive hopes for U.S. interest rate cuts, the oil prices surged for the second time in the last week with the Brent benchmark settling above $85 a barrel. Further, Brent crude futures grew by 32 cents, or 0.4%, to come at $85.40 a barrel.
Amid this, IMARC group expects the global oil and gas market size to reach $65.80 billion by 2032, exhibiting a CAGR of 15.8% influenced by geopolitical tensions, technological advancements, and shifting environmental policies.
Considering the encouraging industry trends, let’s delve into the fundamentals of solid energy stocks such as VLO, DINO, and MRC.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells petroleum-based and low-carbon liquid transportation fuels and petrochemical products internationally. The company operates through three segments: Refining; Renewable Diesel; and Ethanol.
In terms of forward non-GAAP P/E, VLO is trading at 10.62x, 6.9% lower than the industry average of 11.41x. Also, the stock’s forward EV/Sales multiple of 0.42 is 79.9% lower than the industry average of 2.10. Likewise, its forward Price/Sales of 0.36x is 75.9% lower than the industry average of 1.48x.
On May 15, VLO’s Board of Directors declared a regular quarterly cash dividend on common stock of $1.07 per share. The dividend was paid on June 28, 2024 to holders of record at the close of business on May 30, 2024.
VLO pays an annual dividend of $4.28, which translates to a yield of 2.89% at the current share price. Its four-year average dividend yield is 4.39%. Moreover, the company’s dividend payouts have increased at a CAGR of 4.2% over the past five years.
During the first quarter that ended March 31, 2024, VLO reported revenue of $31.76 billion and its operating income was $1.68 billion. Adjusted net income and EPS attributable to VLO stockholders came in at $1.27 billion and $3.82 for the quarter, respectively.
Furthermore, the company’s current assets and cash and cash equivalents were $25.67 billion and $4.92 billion as of March 31, 2024.
Shares of VLO have surged 12.9% over the past six months and 28.6% over the past year to close the last trading session at $148.49. Wall Street analysts expect the stock to hit $176.36 in the near term, indicating a potential upside of 18.86%.
VLO’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
VLO has a B grade for Quality, Value, and Momentum. It is ranked #19 out of 80 stocks in the Energy – Oil & Gas industry.
In addition to the POWR Ratings we’ve stated above, we also have VLO ratings for Growth, Sentiment, and Stability. Get all VLO ratings here.
HF Sinclair Corporation (DINO)
DINO is an independent energy company which produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others. The company owns and operates refineries located in Kansas, Oklahoma, New Mexico, Utah, Washington, and Wyoming.
In terms of forward EV/EBIT, DINO is trading at 7.08x, 26.7% lower than the industry average of 9.66x. Further, the stock’s forward Price/Book multiple of 0.90 is 43.3% lower than the industry average of 1.60. Also, its forward Price/Cash Flow of 7.73x is 44.8% lower than the 5.34x industry average.
On May 5, DINO’s Board of Directors declared a regular quarterly dividend in the amount of $0.50 per share, paid on June 5, 2024 to holders of record of common stock on May 22, 2024.
DINO pays an annual dividend of $2.00, which translates to a yield of 4.15% at the current share price. Its four-year average dividend yield is 3.00%. Moreover, the company’s dividend payouts have increased at a CAGR of 21.9% over the past three years.
For the first quarter that ended March 31, 2024, DINO posted sales and other revenues of $7.03 billion, while its income from operations was $410.80 million. Net income and EPS attributable to HF Sinclair stockholders came in at $314.66 million and $1.57, respectively.
Furthermore, the company’s total assets stood at $17.91 billion as of March 31, 2024, versus total assets of $17.72 billion as of December 31, 2023.
Street expects DINO’s revenue for the second quarter (ended June 2024) to increase marginally year-over-year to $7.87 billion, while its EPS is expected to be $1.02 for the same quarter, respectively. Furthermore, the company surpassed the consensus EPS estimates in all of the trailing four quarters.
DINO’s stock has gained 3.7% over the past year to close the last trading session at $48.63. Wall Street analysts expect the stock to hit $62.75 in the near term, indicating a potential upside of 29.09%.
DINO’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Value, Quality, and Momentum. DINO is ranked #17 among 80 stocks in the Energy – Oil & Gas industry.
Click here to access DINO’s ratings for Growth, Stability and Sentiment.
MRC Global Inc. (MRC)
MRC distributes pipes, valves, fittings, and other infrastructure products and services internationally. The company provides ball, butterfly, gate, globe, check, diaphragm, needle, and plug valves. The company also offers carbon steel fittings and flanges comprising carbon weld fittings, flanges, and piping components.
In terms of forward Price/Sales, MRC is trading at 0.35x, 77% lower than the industry average of 1.50x. Likewise, the stock’s forward non-GAAP P/E multiple of 12.82 is 32% lower than the industry average of 18.86. Similarly, its forward EV/Sales of 0.56x is 69.3% lower than the industry average of 1.83x.
On June 13, MRC’s subsidiary, MRC Global (US) Inc., signed an agreement with ExxonMobil to be its primary provider of pipe, valves and fitting products and services in North America. The agreement includes all of ExxonMobil’s North America upstream and downstream facilities for maintenance, repair and operations and project work.
During the first quarter that ended March 31, 2024, MRC reported sales of $806 million and its adjusted gross profit was $174 million. Adjusted net income attributable to common stockholders came in at $17 million and $0.20 per share, respectively.
In addition, the company total current assets stood at $1.20 billion as of March 31, 2024, compared to $1.15 billion as of December 31, 2023.
Street expects MRC’s revenue for the fourth quarter (ending December 2024) to increase 8.2% year-over-year to $830.80 million and its EPS for the same quarter is expected to grow 27.2% year-over-year to $0.29. Also, its revenue and EPS for the fiscal year 2025 are expected to increase 5.5% and 33.4% year-over-year to $3.53 billion and $1.42, respectively.
MRC’s stock has gained 39% over the past six months and 26.1% over the past year to close the last trading session at $13.93. Wall Street analysts expect the stock to hit $16 in the near term, indicating a potential upside of 15.03%.
MRC’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Sentiment. It also has a B grade for Momentum and Value. Within the Energy - Services industry, MRC is ranked #2 among 51 stocks.
Click here to access additional ratings of MRC for Stability, Growth, and Quality.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
VLO shares were trading at $149.62 per share on Monday afternoon, up $1.70 (+1.15%). Year-to-date, VLO has gained 16.73%, versus a 19.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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