The energy industry is well-positioned to grow significantly this year, boosted by rising oil prices due to increased global demand and ongoing tensions in the Middle East. Additionally, production cuts by major oil producers and China's economic recovery will further support the industry’s growth.
Amid this backdrop, it could be worth investing in energy stocks Valero Energy Corporation (VLO), Graham Corporation (GHM), and Gulf Island Fabrication, Inc. (GIFI), which are poised to perform well.
The recent attacks by Ukraine on Russian refineries have led to a surge in oil prices to multi-month highs. Traders are now evaluating the potential impact on global petroleum inventories. These drone strikes could disrupt oil production, causing short-term supply shortages and market uncertainty, possibly increasing oil prices.
Over the past two months, oil prices have seen a positive trend due to OPEC+ extending voluntary output cuts by 2.2 million bpd through Q2, further supported by Russia's additional cut of 417 thousand bpd.
According to OPEC's latest monthly report, global oil demand is projected to increase by 2.25 million bpd in 2024 and 1.85 million bpd in 2025. Additionally, the group raised its economic growth forecast for this year, anticipating a world economic growth of 2.8% in 2024. Strong global economic growth is expected to drive higher oil demand.
On top of it, there are indications of a recovery in the Chinese economy, with policymakers actively working to stimulate economic growth. Given that China is the largest importer of crude oil, the government's efforts to revive economic activity are expected to increase demand for crude oil.
Considering these conducive trends, let’s analyze the fundamental aspects of the featured energy stocks.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products internationally. It operates through three segments: Refining, Renewable Diesel, and Ethanol.
In terms of the trailing-12-month Return on Common Equity, VLO’s 35.30% is 98.7% higher than the 17.76% industry average. Likewise, its 18.84% trailing-12-month Return on Total Capital is 127.3% higher than the industry average of 8.29%. Additionally, the stock’s 2.24x trailing-12-month asset turnover ratio is 329.6% higher than the industry average of 0.52x.
VLO’s revenues for the third quarter ended September 30, 2023, came in at $38.40 billion. Likewise, its operating income came in at $3.50 billion. The company’s adjusted net income attributable to VLO stockholders stood at $2.62 billion. In addition, its adjusted earnings per common rose 4.9% over the prior-year quarter to $7.49.
Street expects VLO’s revenue for the quarter ending June 30, 2024, to increase 0.9% year over year to $34.80 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 51.4% to close the last trading session at $168.49.
VLO’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 83 stocks in the Energy – Oil & Gas industry. It has a B grade for Momentum and Quality. Click here for the other VLO ratings for Growth, Value, Stability, and Sentiment.
Graham Corporation (GHM)
GHM and its subsidiaries design and manufacture fluid, power, heat transfer, and vacuum equipment for chemical and petrochemical processing, defense, space, petroleum refining, cryogenic, energy, and other industries.
On November 10, 2023, GHM announced the acquisition of P3 Technologies. This acquisition will enhance GHM's turbomachinery solutions with patented technologies and expand into new energy, medical, and existing markets.
In terms of the trailing-12-month levered FCF margin, GHM’s 9.21% is 39.9% higher than the 6.58% industry average. Likewise, its 0.84x trailing-12-month asset turnover ratio is 6.2% higher than the 0.79x industry average. Additionally, its 3.65% trailing-12-month Capex/Sales is 20.7% higher than the industry average of 3.02%.
GHM’s net sales for the fiscal third quarter ended December 31, 2023, increased 9.9% year-over-year to $43.82 million. The company’s adjusted net income and adjusted net income per share grew 182.8% and 175% over the prior-year quarter to $2.42 million and $0.22, respectively. Also, its adjusted EBITDA rose 72.1% from the year-ago value to $3.85 million.
Analysts expect GHM’s revenue for the quarter ending March 31, 2024, to increase 3.4% year over year to $44.50 million. Its EPS for the quarter ending September 30, 2024, is expected to increase 50% year over year to $0.06. Over the past nine months, the stock has gained 101.6%, closing the last trading session at $25.95.
GHM’s positive outlook is reflected in its POWR Ratings. Its overall rating is B, which equates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth. It is ranked #11 in the Energy - Services industry. To see GHM’s Value, Momentum, Stability, and Quality ratings, click here.
Gulf Island Fabrication, Inc. (GIFI)
GIFI and its subsidiaries are fabricators of steel structures and modules in the United States. They operate through the Services, Fabrication, and Shipyard divisions. The company provides various services, including maintenance, construction, and fabrication of steel structures, project management, commissioning, civil construction, staffing, and offshore platform support.
In terms of the trailing-12-month asset turnover ratio, GIFI’s 1.15x is 120% higher than the 0.52x industry average.
GIFI’s adjusted revenue for the fiscal fourth quarter, which ended on December 31, 2023, grew 16.4% year-over-year to $43.99 million. Its adjusted gross profit rose 77.3% from the year-ago value to $8.37 million.
The company’s net income and net income per share increased considerably over the prior-year quarter to $288.35 million and $0.74, respectively. Its new project rewards were $44.40 million, up 17% year-over-year.
For the quarter ending March 31, 2024, GIFI’s EPS is expected to increase 100% year over year to $0.08. Over the past nine months, the stock has gained 131.5%, closing the last trading session at $7.50.
GIFI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. It has an A grade for Growth and Sentiment and a B for Momentum. Within the Energy - Drilling industry, it is ranked #2 out of 15 stocks.
In total, we rate GIFI on eight different levels. Beyond what we stated above, we also have given GIFI grades for Value, Stability, and Quality. Get all the GIFI ratings here.
What To Do Next?
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VLO shares were trading at $167.47 per share on Tuesday afternoon, down $1.02 (-0.61%). Year-to-date, VLO has gained 29.80%, versus a 9.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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