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4 Energy Stocks From the Recovering Integrated Oil Industry
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The overall business scenario of energy companies has recovered dramatically since last year when the coronavirus pandemic had hit global oil demand immensely. Economies are now reopening with more people socializing and going to work, brightening up the outlook for the Zacks Oil and Gas Integrated International industry.
It is now a clear picture that the business environment for upstream, midstream and downstream operations of international integrated energy players is steadily improving. Among the pack, Exxon Mobil Corporation (XOM - Free Report) ,Chevron Corporation (CVX - Free Report) , BP plc (BP - Free Report) and Eni SpA (E - Free Report) are well-positioned to make the most of the exploding fuel demand.
About the Industry
The Zacks Oil and Gas Integrated International industry covers companies primarily involved in upstream, midstream and downstream operations. These companies have upstream businesses in the United States (including prolific shale plays and deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. The midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. Under downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities also involve chemical businesses that manufacture raw materials used for making plastics. The integrated players are now gradually focusing on renewables, leading to energy transitions. In fact, the companies aim to lower emissions from operations and reduce the carbon intensity of products it sells.
4 Trends Shaping the Future of the Oil & Gas Integrated International Industry
Oil Price Recovers: The price of West Texas Intermediate (WTI) crude, trading at more than $79 per barrel mark, has improved drastically from the pandemic-hit April last year when oil was in the negative territory. With coronavirus vaccines being rolled out at a massive scale, leading to the gradual reopening of the economy, the demand for fuel will possibly improve further. Oil price is also being backed by the recent decision of OPEC and its oil-producing allies to maintain their plan of gradually increasing crude production, thereby rebuffing pressure from the United States to pump more of the commodity. It seems that the group appears to be reasonably confident about the trajectory of demand, which should be enough to absorb the additional crude. Overall, the favorable business scenario will continue to aid upstream business of international integrated energy players.
Improving Midstream Demand: With the possibility of upstream energy companies adding more rigs, oil and gas production is expected to increase further. This will likely boost demand for pipeline and storage assets since more commodities will need to be transported and stored. Importantly, the midstream business has lower exposure to commodity price volatility since shippers generally book pipeline assets for the long term, thereby generating stable fee-based revenues.
Recovering Downstream Business: Since countries have been ramping up the rollout of coronavirus vaccines, this will encourage more people to go to offices and travel. With more people coming out of strict social-distancing measures, the demand for gasoline, diesel fuel and jet fuel will increase.
Business Diversification: The international integrated energy companies are gradually investing money in renewable business. Thus, by diversifying operations, companies will be able to capitalize on the mounting demand for cleaner energy.
Zacks Industry Rank Indicates Bright Outlook
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks Oil - Energy sector. It carries a Zacks Industry Rank #13, which places it at the top 5% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Before we present a few international integrated energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Outperforms Sector and S&P 500
The Zacks Oil and Gas Integrated International industry has outperformed the broader Zacks Oil - Energy sector as well as the Zacks S&P 500 composite over the past year.
The industry has gained 72.9% over this period compared to the S&P 500’s improvement of 34% and the broader sector’s rally of 66.6%.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes not just equity into account but also the level of debt.
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, the industry is currently trading at 5.27X, lower than the S&P 500’s 16.71X. It is also below the sector’s trailing-12-month EV/EBITDA of 5.39X.
Over the past five years, the industry has traded as high as 10.23X, as low as 2.83X, with a median of 5.19X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
4 Integrated International Stocks Moving Ahead of the Pack
BP plc: The British energy giant has been generating handsome returns from its refining and marketing operations, thanks to the reopening of the economies. The integrated energy major announced that before declaring results for the December quarter, it has intended to execute an additional $1.25 billion of share repurchases. The company, sporting a Zacks Rank #1 (Strong Buy), continues to anticipate that it will buy back $1 billion shares by every quarter, considering Brent crude price at $60 per barrel. On the dividend front, the company projects a hike in annual dividend per ordinary share of 4% through 2025.
Price and Consensus: BP
Chevron Corporation: The firm is also a leading integrated energy player, with operations across the world. Apart from a strong balance sheet, Chevron has solid capital discipline that will help it tide over volatile commodity prices. Notably, the energy major’s conservative capital spending, especially during the pandemic, will probably help the company generate considerable cashflow. The prime growth driver for the company, at least in the near term, is its low-cost Permian projects. With a Zacks Rank of 1, the company has seen upward earnings estimate revisions for 2021 in the past seven days.You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: CVX
Eni SpA: The company has a global presence in the energy business with a strong upstream presence. In the Ivory Coast, the energy major made major oil and gas discoveries. The #1 Ranked company’s refining and marketing business is also recovering from the pandemic-hit low mark. Eni has set an ambitious goal to fully decarbonize its products and processes.
Price and Consensus: E
Exxon Mobil Corporation: The company is among the largest integrated energy companies in the world. The energy major can rely on its strong balance sheet to survive the pandemic. On Oct 27, the company announced its fourth-quarter dividend at 88 cents per share, reflecting an increase from 87 cents in the third quarter of this year. Following the increase, the integrated energy giant’s annual dividend for 2021 is $3.49 per share, higher than $3.48 in 2020. Looking at the dividend history, it has been clear that the company is strongly focused on returning capital back to shareholders, since over 39 consecutive years, the energy firm has hiked its annual dividend payment. The company, carrying a Zacks Rank #2 (Buy), reported its decision of launching up to a $10-billion share repurchase program next year. ExxonMobil will conduct the stock buyback program over 12 to 24 months.
Price and Consensus: XOM
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4 Energy Stocks From the Recovering Integrated Oil Industry
The overall business scenario of energy companies has recovered dramatically since last year when the coronavirus pandemic had hit global oil demand immensely. Economies are now reopening with more people socializing and going to work, brightening up the outlook for the Zacks Oil and Gas Integrated International industry.
It is now a clear picture that the business environment for upstream, midstream and downstream operations of international integrated energy players is steadily improving. Among the pack, Exxon Mobil Corporation (XOM - Free Report) ,Chevron Corporation (CVX - Free Report) , BP plc (BP - Free Report) and Eni SpA (E - Free Report) are well-positioned to make the most of the exploding fuel demand.
About the Industry
The Zacks Oil and Gas Integrated International industry covers companies primarily involved in upstream, midstream and downstream operations. These companies have upstream businesses in the United States (including prolific shale plays and deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. The midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. Under downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities also involve chemical businesses that manufacture raw materials used for making plastics. The integrated players are now gradually focusing on renewables, leading to energy transitions. In fact, the companies aim to lower emissions from operations and reduce the carbon intensity of products it sells.
4 Trends Shaping the Future of the Oil & Gas Integrated International Industry
Oil Price Recovers: The price of West Texas Intermediate (WTI) crude, trading at more than $79 per barrel mark, has improved drastically from the pandemic-hit April last year when oil was in the negative territory. With coronavirus vaccines being rolled out at a massive scale, leading to the gradual reopening of the economy, the demand for fuel will possibly improve further. Oil price is also being backed by the recent decision of OPEC and its oil-producing allies to maintain their plan of gradually increasing crude production, thereby rebuffing pressure from the United States to pump more of the commodity. It seems that the group appears to be reasonably confident about the trajectory of demand, which should be enough to absorb the additional crude. Overall, the favorable business scenario will continue to aid upstream business of international integrated energy players.
Improving Midstream Demand: With the possibility of upstream energy companies adding more rigs, oil and gas production is expected to increase further. This will likely boost demand for pipeline and storage assets since more commodities will need to be transported and stored. Importantly, the midstream business has lower exposure to commodity price volatility since shippers generally book pipeline assets for the long term, thereby generating stable fee-based revenues.
Recovering Downstream Business: Since countries have been ramping up the rollout of coronavirus vaccines, this will encourage more people to go to offices and travel. With more people coming out of strict social-distancing measures, the demand for gasoline, diesel fuel and jet fuel will increase.
Business Diversification: The international integrated energy companies are gradually investing money in renewable business. Thus, by diversifying operations, companies will be able to capitalize on the mounting demand for cleaner energy.
Zacks Industry Rank Indicates Bright Outlook
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks Oil - Energy sector. It carries a Zacks Industry Rank #13, which places it at the top 5% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Before we present a few international integrated energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Outperforms Sector and S&P 500
The Zacks Oil and Gas Integrated International industry has outperformed the broader Zacks Oil - Energy sector as well as the Zacks S&P 500 composite over the past year.
The industry has gained 72.9% over this period compared to the S&P 500’s improvement of 34% and the broader sector’s rally of 66.6%.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes not just equity into account but also the level of debt.
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, the industry is currently trading at 5.27X, lower than the S&P 500’s 16.71X. It is also below the sector’s trailing-12-month EV/EBITDA of 5.39X.
Over the past five years, the industry has traded as high as 10.23X, as low as 2.83X, with a median of 5.19X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
4 Integrated International Stocks Moving Ahead of the Pack
BP plc: The British energy giant has been generating handsome returns from its refining and marketing operations, thanks to the reopening of the economies. The integrated energy major announced that before declaring results for the December quarter, it has intended to execute an additional $1.25 billion of share repurchases. The company, sporting a Zacks Rank #1 (Strong Buy), continues to anticipate that it will buy back $1 billion shares by every quarter, considering Brent crude price at $60 per barrel. On the dividend front, the company projects a hike in annual dividend per ordinary share of 4% through 2025.
Price and Consensus: BP
Chevron Corporation: The firm is also a leading integrated energy player, with operations across the world. Apart from a strong balance sheet, Chevron has solid capital discipline that will help it tide over volatile commodity prices. Notably, the energy major’s conservative capital spending, especially during the pandemic, will probably help the company generate considerable cashflow. The prime growth driver for the company, at least in the near term, is its low-cost Permian projects. With a Zacks Rank of 1, the company has seen upward earnings estimate revisions for 2021 in the past seven days.You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: CVX
Eni SpA: The company has a global presence in the energy business with a strong upstream presence. In the Ivory Coast, the energy major made major oil and gas discoveries. The #1 Ranked company’s refining and marketing business is also recovering from the pandemic-hit low mark. Eni has set an ambitious goal to fully decarbonize its products and processes.
Price and Consensus: E
Exxon Mobil Corporation: The company is among the largest integrated energy companies in the world. The energy major can rely on its strong balance sheet to survive the pandemic. On Oct 27, the company announced its fourth-quarter dividend at 88 cents per share, reflecting an increase from 87 cents in the third quarter of this year. Following the increase, the integrated energy giant’s annual dividend for 2021 is $3.49 per share, higher than $3.48 in 2020. Looking at the dividend history, it has been clear that the company is strongly focused on returning capital back to shareholders, since over 39 consecutive years, the energy firm has hiked its annual dividend payment. The company, carrying a Zacks Rank #2 (Buy), reported its decision of launching up to a $10-billion share repurchase program next year. ExxonMobil will conduct the stock buyback program over 12 to 24 months.
Price and Consensus: XOM