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3 Oil & Gas Equipment Stocks to Gain From the Promising Industry
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Oil prices remain highly favorable, boosting exploration and production activities and driving robust demand for drilling and production equipment. This positive trend enhances the outlook for the Zacks Oil and Gas- Mechanical and Equipment industry.
Investors are encouraged by the industry players’ inorganic expansion strategies and initiatives to reduce Scope 1 and 2 emissions. Several oil and gas equipment companies boast strong balance sheets with no debt, positioning them well to navigate business uncertainties. Leading companies in this space include Kodiak Gas Services, Inc. (KGS - Free Report) , PEDEVCO Corp. (PED - Free Report) , and Profire Energy, Inc. (PFIE - Free Report) .
About the Industry
The Zacks Oil and Gas - Mechanical and Equipment industry comprises companies that provide necessary oilfield equipment — production machinery, pumps, valves and several other drilling appliances like rig components — to exploration and production companies. These help upstream energy players extract crude oil and natural gas from fields onshore and offshore. Hence, the well-being of oilfield equipment businesses is positively correlated to expenditures by upstream companies. These companies receive deals from integrated energy firms and independent as well as national oil and gas companies. Oilfield equipment providers also design, manufacture, engineer and install products that treat and process crude oil, natural gas and others. Their products comprise gadgets and instruments for gas compression packages and water treatment works.
What's Shaping the Future of the Oil & Gas Equipment Industry?
Drilling & Production Equipment Demand to Improve: The demand for drilling and production equipment is poised for significant improvement as oil prices exceed $80 per barrel. This favorable pricing environment is encouraging exploration and production companies to escalate their upstream activities, thereby driving robust demand for drilling & production equipment of the companies belonging to the industry.
Inorganic Expansion: In the competitive market landscape, numerous industry players are making inorganic expansion a strategic priority. This approach is anticipated to enhance shareholder value by targeting acquisitions of businesses that offer stable revenue streams and intellectual property benefits.
Reduction in Scope 1 and 2 Emissions: Oil and gas equipment companies are implementing decarbonization initiatives to reduce Scope 1 and 2 emissions, aligning with global sustainability goals. These measures not only contribute to mitigating global warming but also position these companies favorably within the increasingly environmentally conscious market. By adopting advanced technologies and operational efficiencies, these firms are not only addressing regulatory pressures but also enhancing their long-term viability and appeal to ESG-focused investors.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Oil and Gas - Mechanical and Equipment is a seven-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #103, which places it in the top 41% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish 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 look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, S&P 500
The Zacks Oil and Gas - Mechanical and Equipment industry has outperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has risen 36% in the past year, surpassing the broader sector’s improvement of 14.7% and the S&P 500’s gain of 26.9%.
One-Year Price Performance
Industry's Current Valuation
Since oilfield equipment providers 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 into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 9.01X, lower than the S&P 500’s 19.84X. However, it is higher than the sector’s trailing 12-month EV/EBITDA of 2.98X.
Over the past five years, the industry has traded as high as 13.42X, as low as 2.42X, and with a median of 10.50X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
3 Oil & Gas Equipment Stocks Leading the Pack
Profire Energy: It is a leading provider of powerful and safe burner and combustion management solutions. The company’s business is mainly focused on the energy sector’s upstream, midstream and downstream areas. Profire Energy, carrying a Zacks Rank #3 (Hold), is focused on expanding its product solutions in oil and gas operations that have new opportunities.
Price and Consensus: PFIE
Kodiak Gas Services: Being a well-known natural gas contract compression service provider, Kodiak Gas Services is strongly footed to gain from increasing clean energy demand. The stock, carrying a Zacks Rank of 3, has witnessed upward earnings estimate revisions for 2024 over the past 30 days.
Price and Consensus: KGS
PEDEVCO Corp: The company is poised for continued growth with the anticipated increase in production from new non-operated wells in the D-J Basin. PEDEVCO, holding a Zacks Rank #1 (Strong Buy), is concentrating its efforts on developing the Permian Basin, recognized as the most productive basin in the United States. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: PED
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3 Oil & Gas Equipment Stocks to Gain From the Promising Industry
Oil prices remain highly favorable, boosting exploration and production activities and driving robust demand for drilling and production equipment. This positive trend enhances the outlook for the Zacks Oil and Gas- Mechanical and Equipment industry.
Investors are encouraged by the industry players’ inorganic expansion strategies and initiatives to reduce Scope 1 and 2 emissions. Several oil and gas equipment companies boast strong balance sheets with no debt, positioning them well to navigate business uncertainties. Leading companies in this space include Kodiak Gas Services, Inc. (KGS - Free Report) , PEDEVCO Corp. (PED - Free Report) , and Profire Energy, Inc. (PFIE - Free Report) .
About the Industry
The Zacks Oil and Gas - Mechanical and Equipment industry comprises companies that provide necessary oilfield equipment — production machinery, pumps, valves and several other drilling appliances like rig components — to exploration and production companies. These help upstream energy players extract crude oil and natural gas from fields onshore and offshore. Hence, the well-being of oilfield equipment businesses is positively correlated to expenditures by upstream companies. These companies receive deals from integrated energy firms and independent as well as national oil and gas companies. Oilfield equipment providers also design, manufacture, engineer and install products that treat and process crude oil, natural gas and others. Their products comprise gadgets and instruments for gas compression packages and water treatment works.
What's Shaping the Future of the Oil & Gas Equipment Industry?
Drilling & Production Equipment Demand to Improve: The demand for drilling and production equipment is poised for significant improvement as oil prices exceed $80 per barrel. This favorable pricing environment is encouraging exploration and production companies to escalate their upstream activities, thereby driving robust demand for drilling & production equipment of the companies belonging to the industry.
Inorganic Expansion: In the competitive market landscape, numerous industry players are making inorganic expansion a strategic priority. This approach is anticipated to enhance shareholder value by targeting acquisitions of businesses that offer stable revenue streams and intellectual property benefits.
Reduction in Scope 1 and 2 Emissions: Oil and gas equipment companies are implementing decarbonization initiatives to reduce Scope 1 and 2 emissions, aligning with global sustainability goals. These measures not only contribute to mitigating global warming but also position these companies favorably within the increasingly environmentally conscious market. By adopting advanced technologies and operational efficiencies, these firms are not only addressing regulatory pressures but also enhancing their long-term viability and appeal to ESG-focused investors.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Oil and Gas - Mechanical and Equipment is a seven-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #103, which places it in the top 41% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish 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 look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, S&P 500
The Zacks Oil and Gas - Mechanical and Equipment industry has outperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has risen 36% in the past year, surpassing the broader sector’s improvement of 14.7% and the S&P 500’s gain of 26.9%.
One-Year Price Performance
Industry's Current Valuation
Since oilfield equipment providers 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 into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 9.01X, lower than the S&P 500’s 19.84X. However, it is higher than the sector’s trailing 12-month EV/EBITDA of 2.98X.
Over the past five years, the industry has traded as high as 13.42X, as low as 2.42X, and with a median of 10.50X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
3 Oil & Gas Equipment Stocks Leading the Pack
Profire Energy: It is a leading provider of powerful and safe burner and combustion management solutions. The company’s business is mainly focused on the energy sector’s upstream, midstream and downstream areas. Profire Energy, carrying a Zacks Rank #3 (Hold), is focused on expanding its product solutions in oil and gas operations that have new opportunities.
Price and Consensus: PFIE
Kodiak Gas Services: Being a well-known natural gas contract compression service provider, Kodiak Gas Services is strongly footed to gain from increasing clean energy demand. The stock, carrying a Zacks Rank of 3, has witnessed upward earnings estimate revisions for 2024 over the past 30 days.
Price and Consensus: KGS
PEDEVCO Corp: The company is poised for continued growth with the anticipated increase in production from new non-operated wells in the D-J Basin. PEDEVCO, holding a Zacks Rank #1 (Strong Buy), is concentrating its efforts on developing the Permian Basin, recognized as the most productive basin in the United States. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: PED