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4 Integrated Energy Stocks Set to Escape Industry Weakness
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Uncertainty around the trajectory for interest rates has made the overall energy market extremely volatile. This is hurting the prospects of upstream and downstream businesses, thereby making the outlook for the Zacks Oil and Gas Integrated International industry gloomy.
Among the companies in the industry that will probably survive the business challenges are Exxon Mobil Corporation (XOM - Free Report) , Chevron Corporation (CVX - Free Report) , Shell plc (SHEL - Free Report) and YPF Sociedad Anónima (YPF - Free Report) .
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 the deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. Midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. In downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities involve chemical businesses that manufacture raw materials for making plastics. The integrated players are now gradually focusing on renewables, leading to the energy transition. The firms aim to lower emissions from operations and cut the carbon intensity of the products sold.
3 Trends Shaping the Future of the Industry
Recessionary Concerns: Analysts express worry that an extended period of tight monetary policy, lasting longer than initially anticipated, could potentially steer the economy into a recession. Overall, there has been uncertainty over the interest rate trajectory, spurring market volatility. These are making the upstream business environment extremely choppy.
Refining Business Under Pressure: Worries about recessions have also raised concerns about weak fuel demand. Since cashflows from refining activities are dependent on demand for end petroleum products, the integrated companies’ refining businesses may get hurt. Also, the high oil price is increasing input costs of refiners, squeezing profit.
Declining Operating Cashflows: Over the past two reported quarters, the composite stocks belonging to the industry have witnessed declining net operating cashflows. The trend can continue since the overall business scenario of the international integrated players is highly uncertain.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks Oil - Energy sector. It carries a Zacks Industry Rank #198, which places it in the bottom 19% 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 bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Oil and Gas Integrated International industry has outperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has rallied 31.3% over this period compared to the S&P 500’s gain of 18.4% and the broader sector’s jump of 21%.
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 Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) 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 EV/EBITDA, the industry is currently trading at 3.18X, lower than the S&P 500’s 12.89X. It is also below the sector’s trailing-12-month EV/EBITDA of 3.46X.
Over the past five years, the industry has traded as high as 6.40X, as low as 2.57X, with a median of 4.61X.
Trailing 12-Month EV/EBITDA Ratio
4 Integrated International Stocks to Keep a Close Eye on
YPF Sociedad: Being a leading energy player, YPF Sociedad is Argentina’s largest company, considering revenues. Compared to the past few years, YPF, carrying a Zacks Rank #3 (Hold), reflects healthier adjusted EBITDA and margins. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: YPF
Shell: In liquified natural gas, Shell is among the leading global players. Also, growing renewable business at a rapid pace is among the core strategies of Shell. In the renewable energy front, Shell has roughly 50 gigawatts of renewable generation capacity, considering projects that are either in operation, under construction or in the pipeline. Thus, for renewables and energy solutions, SHEL, with a Zacks Rank of 1, is investing actively in solar energy, wind energy, electric vehicle charging and others.
Price and Consensus: SHEL
Chevron: It is also a leading integrated energy player with operations worldwide. Apart from a strong balance sheet, it has a solid capital discipline that will help it tide over volatile commodity prices. The energy major’s conservative capital spending will probably help it generate considerable cash flow, even in an unstable business scenario. The primary growth driver for the #3 Ranked stock, at least in the near term, is its low-cost Permian projects.
Price and Consensus: CVX
ExxonMobil: It is among the largest integrated energy companies in the world. The energy major can rely on its strong balance sheet to withstand any business turmoil. ExxonMobil, with a Zacks Rank of 3, is banking on low-cost project pipelines centered around the Permian — the most prolific basin in the United States — and offshore Guyana resources.
Price and Consensus: XOM
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4 Integrated Energy Stocks Set to Escape Industry Weakness
Uncertainty around the trajectory for interest rates has made the overall energy market extremely volatile. This is hurting the prospects of upstream and downstream businesses, thereby making the outlook for the Zacks Oil and Gas Integrated International industry gloomy.
Among the companies in the industry that will probably survive the business challenges are Exxon Mobil Corporation (XOM - Free Report) , Chevron Corporation (CVX - Free Report) , Shell plc (SHEL - Free Report) and YPF Sociedad Anónima (YPF - Free Report) .
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 the deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. Midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. In downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities involve chemical businesses that manufacture raw materials for making plastics. The integrated players are now gradually focusing on renewables, leading to the energy transition. The firms aim to lower emissions from operations and cut the carbon intensity of the products sold.
3 Trends Shaping the Future of the Industry
Recessionary Concerns: Analysts express worry that an extended period of tight monetary policy, lasting longer than initially anticipated, could potentially steer the economy into a recession. Overall, there has been uncertainty over the interest rate trajectory, spurring market volatility. These are making the upstream business environment extremely choppy.
Refining Business Under Pressure: Worries about recessions have also raised concerns about weak fuel demand. Since cashflows from refining activities are dependent on demand for end petroleum products, the integrated companies’ refining businesses may get hurt. Also, the high oil price is increasing input costs of refiners, squeezing profit.
Declining Operating Cashflows: Over the past two reported quarters, the composite stocks belonging to the industry have witnessed declining net operating cashflows. The trend can continue since the overall business scenario of the international integrated players is highly uncertain.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks Oil - Energy sector. It carries a Zacks Industry Rank #198, which places it in the bottom 19% 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 bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Oil and Gas Integrated International industry has outperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has rallied 31.3% over this period compared to the S&P 500’s gain of 18.4% and the broader sector’s jump of 21%.
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 Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) 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 EV/EBITDA, the industry is currently trading at 3.18X, lower than the S&P 500’s 12.89X. It is also below the sector’s trailing-12-month EV/EBITDA of 3.46X.
Over the past five years, the industry has traded as high as 6.40X, as low as 2.57X, with a median of 4.61X.
Trailing 12-Month EV/EBITDA Ratio
4 Integrated International Stocks to Keep a Close Eye on
YPF Sociedad: Being a leading energy player, YPF Sociedad is Argentina’s largest company, considering revenues. Compared to the past few years, YPF, carrying a Zacks Rank #3 (Hold), reflects healthier adjusted EBITDA and margins. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: YPF
Shell: In liquified natural gas, Shell is among the leading global players. Also, growing renewable business at a rapid pace is among the core strategies of Shell. In the renewable energy front, Shell has roughly 50 gigawatts of renewable generation capacity, considering projects that are either in operation, under construction or in the pipeline. Thus, for renewables and energy solutions, SHEL, with a Zacks Rank of 1, is investing actively in solar energy, wind energy, electric vehicle charging and others.
Price and Consensus: SHEL
Chevron: It is also a leading integrated energy player with operations worldwide. Apart from a strong balance sheet, it has a solid capital discipline that will help it tide over volatile commodity prices. The energy major’s conservative capital spending will probably help it generate considerable cash flow, even in an unstable business scenario. The primary growth driver for the #3 Ranked stock, at least in the near term, is its low-cost Permian projects.
Price and Consensus: CVX
ExxonMobil: It is among the largest integrated energy companies in the world. The energy major can rely on its strong balance sheet to withstand any business turmoil. ExxonMobil, with a Zacks Rank of 3, is banking on low-cost project pipelines centered around the Permian — the most prolific basin in the United States — and offshore Guyana resources.
Price and Consensus: XOM