The energy sector’s outlook underscores the essential role of energy in human development, with renewable growth alongside continued reliance on oil and gas to meet over half of global needs by 2050. So, investors could consider buying energy stocks VAALCO Energy, Inc. (EGY), Geospace Technologies Corporation (GEOS), and Adams Resources & Energy, Inc. (AE).
The extension of OPEC+ production cuts tighten global oil supplies, pushing the forecasted Brent crude oil price to $88 per barrel in the second quarter of the fiscal year 2024, up $4 from last month. However, given the rising demand, global oil production is expected to increase by 0.40 million barrels per day in 2024, primarily due to non-OPEC+ countries.
Besides, the International Energy Agency (IEA) raised its 2024 oil demand growth forecast by 0.11 million barrels per day to 1.30 million bpd due to disruptions in Red Sea shipping. The agency also forecasted a slight supply deficit this year following OPEC+ members extended production cuts.
Also, global gas demand is expected to grow by 2.5% this year to about 4.19 Tcm, supported by lower prices, and global LNG supply is projected to increase by 3.5%, potentially restraining demand growth.
In addition, the U.S. Department of Energy allocated up to $22 million to streamline planning, siting, and permitting for large-scale renewable energy projects, allocating $10 million to six state-based initiatives. Awards range from $1 million to $2 million per project, focusing on technical assistance and community engagement for effective deployment.
Moreover, the oil and gas market is expanding due to increased demand from emerging economies, advancements in extraction technologies like shale gas, and the shift to cleaner natural gas as a transitional fuel, driving global investments in exploration and production.
The global oil and gas market was valued at $7.63 trillion in 2024 and is further projected to grow at a CAGR of 5.2% to reach $9.35 trillion by 2028.
Considering these conducive trends, let’s discuss the fundamentals of three energy stock picks: EGY, GEOS, and AE.
VAALCO Energy, Inc. (EGY)
EGY is an independent energy company with interests in Gabon, Egypt, Equatorial Guinea, and Canada, focusing on oil and gas exploration, development, and production. Its assets include offshore blocks in Gabon, concessions in Egypt, undeveloped acreage in Equatorial Guinea, and production and working interests in Alberta, Canada.
On March 25, 2024, EGY completed agreements and gained government approval for the Joint Operating agreement concerning the Venus-Block P Plan of Development in Equatorial Guinea. This paves the way for the company to advance with development plans, including the Front-End Engineering Design study, enhancing its operational portfolio.
On February 26, EGY declared a quarterly cash dividend of $0.0625 per share of common stock for the first quarter of 2024 ($0.25 annualized), payable on March 28, 2024. The company’s annual dividend translates to a yield of 3.60% on the prevailing price level. Its four-year average dividend yield is 1.69%.
EGY’s trailing-12-month levered FCF margin of 29.77% is 380.1% higher than the industry average of 6.20%. Likewise, the stock's trailing-12-month EBITDA margin of 60.25% is 65.9% higher than the 36.31% industry average.
During the fourth quarter, which ended December 31, 2023, EGY's revenues increased 54.4% from a year-ago quarter to $149.15 million. The company's adjusted income rose 102.9% and 94.7% from the previous-year quarter to $38.99 million and $0.37 per share, respectively. Also, its adjusted EBITDAX grew 92.5% year-over-year to $95.88 million.
For the fiscal year 2024, the company forecasts production of 20,800 to 23,400 barrels of oil equivalent per day (BOEPD) with Working Interest (WI) and 16,100 to 18,300 BOEPD with Net Revenue Interest (NRI). Its CAPEX budget for the year is set at $70 million to $90 million, covering both WI and NRI assets.
Analysts project EGY’s revenue to increase 41.4% year-over-year to $113.70 million for the first quarter ending March 2024. Its EPS for the ongoing quarter is expected to grow 257.1% year-over-year to $0.25. Also, the company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
EGY's shares have surged 64.3% over the past month and 87.3% over the past nine months to close the last trading session at $6.95. Also, the stock gained 12.6% intraday.
EGY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
The stock has a B grade for Growth, Value, Sentiment, and Quality. In the Energy - Oil & Gas industry, EGY is ranked #3 among 83 stocks.
To access additional ratings for EGY’s Momentum and Stability, click here.
Geospace Technologies Corporation (GEOS)
GEOS designs and manufactures seismic data acquisition instruments for the oil and gas industry alongside industrial and security solutions. The company serves diverse markets globally, including oil exploration, industrial imaging, and government security agencies.
On January 03, 2024, GEOS secured a $30 million contract with an international marine geophysical services provider for the purchase of its latest shallow water ocean bottom nodes, known as Mariner™. This contract replaces the previously announced $20 million agreement.
“As a manufacturing-centric company, we’re always pleased when a customer purchases our products. While the consolidation of our Houston operation allowed us to significantly lower costs and streamline our equipment rental operations, we are still an organization built around the manufacture and sale of equipment,” said Walter R. Wheeler, GEO’s President and CEO.
GEOS’ trailing-12-month ROTA of 14.93% is 126.3% higher than the industry average of 6.59%. Also, the stock's trailing-12-month asset turnover ratio of 0.94x is 79.8% higher than the 0.52x industry average.
GEOS' total revenue increased 60.8% from the prior-year quarter to $50.03 million in the first quarter of fiscal year 2024 that ended December 31, 2023. Its total operating expenses decreased 13.1% year-over-year to $9.40 million. Its net income was $12.68 million, or $0.94 per share, compared to the year-ago quarter's net loss of $97 thousand, or $0.01 per share, respectively.
GEOS’ shares climbed 82.2% over the past nine months and 105.2% over the past year to close the last trading session at $12.96.
GEOS’ POWR Ratings reflect its robust prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
GEOS has an A grade for Growth and B for Value, Momentum, and Quality. Within the Energy - Services industry, it is ranked #3 of 50 stocks.
In addition to the POWR Ratings stated above, one can access GEOS’ additional Stability and Sentiment ratings here.
Adams Resources & Energy, Inc. (AE)
AE operates in the United States, engaging in the marketing, transportation, and storage of crude oil and related products through segments like Crude Oil Marketing and Transportation. The company serves customers across several states.
On March 22, 2024, AE paid a quarterly cash dividend in the amount of $0.24 per common share for the fourth quarter of 2023. The company pays $0.96 annually, which translates to a yield of 3.62% on the prevailing price level, higher than its four-year average dividend yield of 3.25%.
The company has raised its dividend payouts at a CAGR of 1.8% over the past five years. Moreover, the company boasts a 15-year record for consecutive years of dividend payments.
AE’s trailing-12-month asset turnover ratio of 7.37x is significantly higher than the industry average of 0.52x. Also, its trailing-12-month cash per share of $13.06 is significantly higher than the $1 industry average.
In the fourth quarter that ended December 31, 2023, AE reported total revenues of $709.75 million. The company's total costs and expenses decreased 6% year-over-year to $710.43 million. Its adjusted free cash flow rose 99.9% from a year-ago quarter to $6.84 million.
In addition, the company reported adjusted net earnings of $90 thousand and $0.03 per common share, compared to adjusted net losses of $2.68 million and $0.85 per common share in the same quarter of the previous year, respectively.
Street anticipates AE to report revenue of $561.26 million for the first quarter ending March 2024, with the company’s EPS expected to increase by 59.5% year-over-year for the same period. Moreover, Adams Resources has surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 3.2% intraday and 13.5% over the past month to close the last trading session at $26.55.
AE’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
AE has an A grade for Value and a B for Growth, Momentum, and Quality. Within the Energy - Oil & Gas industry, it is ranked first.
Click here for AE’s additional ratings for Stability and Sentiment.
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EGY shares were trading at $6.79 per share on Tuesday morning, down $0.16 (-2.30%). Year-to-date, EGY has gained 53.51%, versus a 10.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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