The energy industry was one of the worst affected sectors at the beginning of the pandemic. With countries’ economies closed for weeks oil prices crashed, turning negative for the first time in history. West Texas Intermediate (WTI) crude oil prices fell 289.4% over four days, hitting negative $37.63 per barrel on April 20th.
Oil's recovery trajectory has been steady since then, however. With China reopening its industrial sector first, and most countries now following suit, WTI has gained 222.5% since its all-time low. With most developed countries now authorizing Pfizer, Inc. (PFE) and BioNTech’s (BNTX) vaccine for deployment, industrial operations can be expected to return to the pre-pandemic levels in the foreseeable future. OPEC expects the demand for oil to rise 25% in 2021to surpass 2019 levels.
While many countries have announced regulations to limit the use of non-renewable energy, it may take a long time for that transformation to take widespread effect. This is because most economies are expected to struggle to bear the cost of replacing their entire fossil-fuel-based industrial infrastructure.
With the US economy gradually resuming production since the second quarter, energy stocks have recovered steadily. The S&P Global Oil Index has gained 24.8% quarter-to-date. And companies such as Chevron Corporation (CVX), Baker Hughes Company (BKR), Pioneer Natural Resources Co. (PXD) and Halliburton Company (HAL) have witnessed significant gains in tandem with the global recovery, and we believe are well-positioned to grow further heading into 2021.
Chevron Corporation (CVX)
CVX operates in the integrated energy and chemical industries in two sectors – Upstream and Downstream services. The first sector engages in exploration, drilling and transportation of natural gas and petroleum, while the downstream sector is involved in refining, processing, and marketing.
On October 5th, CVX acquired the former S&P 500-company Noble Energy. This gives CVX access to Noble Energy’s high-quality assets and strong liquidity position, which is expected to drive its long-term growth.
CVX is currently exchanging 10 series of CVX senior notes for identical notes issued by its US subsidiary Chevron USA (CUSA).
Earlier this month, CVX announced a capital budget of $14 billion for 2021, which is expected to fund its organic and exploratory expenses. The company plans to raise approximately $300 million next year for this purpose. It has also announced that its annual capital budget guidance for 2022 -2025 will be in the range of $14 billion to $16 billion.
CVX’s third quarter (ended September) financials were significantly affected by the reduced demand for energy products. However, the situation has improved from earlier this year because the gradual reopening of the global economy and the industrial sector have resuscitated its operations. CVX reported adjusted earnings of $201 million over this period and surpassed the consensus EPS estimate by 140.7%.
Analysts expect CVX’s EPS to rise 3,600% next year to $2.80. The company has an impressive earnings surprise history as well. It beat the Street EPS estimates in three of the four trailing quarters. The consensus revenue estimate of $121.50 billion for 2021 represents a 22.8% increase year-over-year.
CVX hit its 52-week high of $122.72 in January but declined 58% to hit its 52-week low of $51.60 in March. The stock has gained 75.3% since its March lows.
How does CVX stack up for the POWR Ratings?
B for Trade Grade
A for Peer Grade
B for Overall POWR Rating.
It is currently ranked #2 out of 97 stocks in the Energy – Oil & Gas industry.
Baker Hughes Company (BKR)
BKR offers a wide range of oilfield related services, through four segments – Oilfield Services, Oilfield Equipment, Turbomachinery and Process Solutions, and Digital Solutions. The company’s primary operational chain delivers support to transport natural gas and crude oil from under the sea to production facilities.
Qatar Petroleum recently ordered multiple main refrigerant compressors, 12 gas turbines and 24 centrifugal compressors from BKR for its North Field East Project. It is one BKR’s largest orders in the past five years, which should help t build a stronger partnership with the Qatar government. As Qatar aims to emerge as one of the largest LNG suppliers globally by 2025, this joint venture should pave the way for an even larger volume of orders for BKR.
The company also teamed with Saudi Arabia’s Aramco to develop non-metallic products that have multiple applications in the energy sector, under the brand name ‘Novel’.
Earlier in November, BKR acquired Compact Carbon Company, which specializes in carbon capture solutions. This acquisition aligns with BKR’s long-term goal of becoming a global clean energy industry leader by helping carbon-intensive companies reduce their emission rate.
BKR has partnered with Wurth Industry North America to offer 3D printing, advanced designing, and inventory related services to energy technology industries worldwide. This joint venture allows BKR to access Wurth’s 80,000 customers worldwide.
BKR’s orders increased 4% sequentially to $5.10 billion in the third quarter ended September 2020. Revenues rose 7% from the prior quarter to $5 billion, while non-GAAP adjusted operating income rose 125% sequentially to $234 billion. Non-GAAP adjusted EPS increased substantially from the negative values reported in the prior quarter to $0.04.
The consensus EPS of $0.58 for next year indicates a 114.8% improvement year-over-year. Moreover, BKR’s EPS is expected to increase at a rate of 5% per annum over the next five years.
BKR has gained more than 145% since hitting its 52-week low of $9.12 in March. The stock is currently trading 12.5% below its 52-week high of $25.99, which it hit in January.
It’s no surprise that BKR is rated “Buy” with an “A” for Trade Grade and Peer Grade, and “B” for Buy & Hold Grade. It is currently ranked #3 out of 97 stocks in the Energy – Oil & Gas industry.
Pioneer Natural Resources Co. (PXD)
PXD is involved in exploration, development and production of oil and natural gas in the United States. It mainly operates in the Permian basin in West Texas for drilling, oil well stimulation and hydraulic fracking.
PXD aims to reduce greenhouse gas intensity and methane intensity in its emissions by 25% and 40% respectively, over the next 10 years. It also plans to reduce its flaring intensity to less than 1% of the natural gas produced by 2022.
PXD is currently acquiring Pioneer Natural Resources Company for approximately $4.50 billion. The acquisition is expected to be completed by January next year and is expected to boost PXD’s presence in West Texas and increase its production capacity.
PXD generated $13 million in Other Income in the third quarter ended September 2020, up 105.9% year-over-year. The company ended the quarter with a strong liquidity position; its cash and cash equivalents balance increased 171.2% from the year-ago value to $1.39 billion.
Analysts expect PXD’s EPS to rise 214% next year, and at a rate of $13.4% per annum over the next five years. Moreover, PXD beat the Street EPS estimates in three of the trailing four quarters, which is impressive. The consensus revenue estimate of $5.92 billion for 2021 indicates a 66.6% rise from the year-ago value.
PXD hit its 52-week high of $159.61 in January this year but fell 69.4% to hit its 52-week low of $48.62 in March. The stock has gained 135.4% since its mid-March low.
Halliburton Company (HAL)
HAL offers its technical expertise and consulting services to oil and natural gas companies around the world. The company provides services throughout the lifecycle of a reservoir, from the location of hydrocarbons to the drilling, transporting, and refining of crude oil and natural gas. With more than 100 years of industry experience, HAL operates through two segments – Completion and Production, and Drilling and Evaluation.
HAL recently teamed up with Accenture to streamline its supply chain logistics and manufacturing service model to boost its production capacity. This partnership, which is expected to facilitate HAL’s digital transformation, is scheduled to take effect from 2021.
HAL’s adjusted operating income rose 17% sequentially to $275 million in the third quarter ended September 2020. This can be attributed to a 33% sequential increase in operating income generated from the ‘Completion and Production’ segment. Adjusted net income rose 117.4% from the prior quarter to $100 million.
The consensus EPS estimate of $0.66 for next year indicates a 6.5% rise year-over-year. HAL has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing 4 quarters.
HAL has gained more than 355% since hitting its 52-week low of $4.25 in March. The POWR Ratings are also bullish on HAL as it has a “Buy” rating. It also has a “B” for Trade Grade and Peer Grade. Among Energy - Services stocks, it’s ranked #4 out of 60.
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CVX shares were trading at $92.84 per share on Thursday afternoon, up $2.40 (+2.65%). Year-to-date, CVX has declined -18.60%, versus a 15.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.4 Energy Stocks to Buy Now for a 2021 Rebound appeared first on StockNews.com