OPEC and its allies agreed to increase their oil output on December 2, in response to the pressure from the United States and rising demand. The group stuck with its existing plan  to increase output in January by 400,000 bpd. The price of Brent crude declined  more than a dollar per barrel trade at $70 per barrel following the news.

Last Thursday, due to a mild weather forecast, United States natural gas futures were down for a fourth session, with market sentiment turning bearish. In addition, the Moderna, Inc. MRNA) CEO’s, voicing of concerns over the effectiveness of the current vaccines against the new COVID-19 variant, caused global oil prices fall 3% on November 30 amid rising omicron cases and the imposition of travel restrictions by several countries.

Although oil prices recovered somewhat today with the hope that the new variant is less damaging than its predecessors, they are still trading well below their October high of $86 per barrel. Therefore, we think it may be best to avoid fundamentally weak oil and gas stocks The Williams Companies, Inc. (WMB), Coterra Energy Inc. (CTRA), and Tellurian Inc. (TELL), which each looks overvalued at its current price.

The Williams Companies, Inc. (WMB)

WMB in Tulsa, Okla., is an energy infrastructure company that operates primarily in the United States. The company operates through the segments of Transmission & Gulf of Mexico; Northeast G&P; and West, owning and operating pipelines, processing facilities, and natural gas liquids (NGLs) storage capacities.

In October, WMB announced the pricing of a public offering of $600 million of 2.600% senior notes, due 2031, and $650 million of 3.500% senior notes due 2051. The proceeds from the transactions are expected to be used by the company for general corporate purposes and to repay  $1.25 billion of  its outstanding 3.60% senior notes, due 2022.

In terms of forward non-GAAP PEG, WMB is currently trading at 7.06x, which is 846.9% above the 0.75x industry average. Its 3.29 forward Price/Sales multiple is 153.3% higher than the 1.30 industry average. For its fiscal third quarter, ended Sept.30, WMB’s operating income decreased 44.6% year-over-year to $355 million. Its net income and net income per share declined 46.8% and 48%, respectively, from the same period last year to $164 million and $0.13.

The Street’s $0.32 EPS estimate for the next quarter (ending March 2022) indicates an 8.6% year-over-year decrease.

The stock has declined 3% in price over the past six months and 5.1% over the past month to close Friday’s trading session at $27.11.

WMB’s POWR Ratings reflect this bleak outlook. The stock has a Value grade of D. In the 83-stock Energy – Oil & Gas industry, WMB is ranked #55. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Click here to see the additional POWR Ratings for WMB (Growth, Momentum, Stability, Sentiment, and Quality).

Coterra Energy Inc. (CTRA)

CTRA in Houston, Tex., operates as an independent oil and gas company that engages in the exploration, development, production, and marketing of oil and gas properties in the United States. The company focuses primarily on the Marcellus Shale, located in Susquehanna County in Pennsylvania.

In October, CTRA announced the successful completion of the merger between Cabot Oil & Gas Corporation and Cimarex Energy Co., creating a premier, diversified energy company. The company’s common stock began trading on the New York Stock Exchange on October 4 under the ticker ‘CTRA’. The company had previously traded under the ‘COG’ ticker.

CTRA’s forward EV/Sales multiple of 5.74 is 143.5% higher than the 2.36 industry average. In terms of its forward Price/Sales, it is currently trading at 5.45x, which is 318.9% above the 1.30x industry average.

CTRA’s operating expenses increased 15.5% year-over-year to $344.74 million in its  fiscal third quarter, ended September 30. Its net cash used in investing activities rose 24.9% from the prior-year quarter to $183.89 million, while net cash used in financing activities increased 45.6% from the same period last year to $143.96 million.

Analysts expect CTRA’s EPS to increase 24.7% year-over-year to $3.63 in the next year (fiscal 2022).

CTRA’s shares have declined 6.3% over the past month to close Friday’s trading session at $20.22. It has declined 3% over the past five days.

CTRA has a D grade for Value and Stability. It is ranked #50 in the Energy – Oil & Gas industry. To see the additional POWR Ratings for Growth, Momentum, Sentiment, and Quality for CTRA, click here.

Tellurian Inc. (TELL)

TELL is a natural gas company focused mainly on developing liquefied natural gas (LNG) production on the United States Gulf Coast and building up infrastructure assets. TELL is based in Houston, Tex. 

On November 5, TELL announced the pricing of a $50 million offering of senior notes due 2028. The company plans to use the proceeds for financing general corporate purposes and the potential accumulation of upstream assets. However, it might increase its debt burden significantly.

In terms of forward EV/Sales, TELL is currently trading at 18.70x, which is 692.4% above the 2.36x industry average. Its 20.76 forward Price/Sales multiple  is 1,497.2% higher than the 1.30 industry average.

For its third fiscal quarter, ended September 30, TELL’s total operating costs and expenses increased 3.1% year-over-year to $30.15 million. Its net loss and net loss per common share came in at $15.93 million and $0.04, respectively. For the nine months ended September 30, the company’s net cash used in investing activities increased 6,176.6% year-over-year to $24.42 million.

The Street expects TELL’s EPS to remain negative until next year (fiscal 2022).

TELL’s stock has gained 316.7% in price over the past year and 251.6% year-to-date to close yesterday’s trading session at $4.50.

Over the past six months, the stock has declined 36.9% to close Friday’s trading session at $3.11. It has declined 34.5% over the past month.

TELL’s poor prospects are reflected in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. The stock has an F grade for Value, Stability, and Quality and a D grade for Growth. It is ranked #82 in the same industry.

In addition to the POWR Rating grades we have stated above, one can see TELL ratings for Momentum and Sentiment here.

WMB shares were trading at $27.55 per share on Monday afternoon, up $0.44 (+1.62%). Year-to-date, WMB has gained 44.21%, versus a 24.33% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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