The oil industry’s prospects appear bright, owing to increasing oil demand, geopolitical tensions, and supply-cut expectations driving oil prices up. Against this backdrop, quality oil stocks BP p.l.c. (BP), Petróleo Brasileiro S.A. – Petrobras (PBR), and Cheniere Energy Partners, L.P. (CQP) could be watched for returns in April. Read on….
The increasing oil demand for transportation, manufacturing, and other industrial activities and the adoption of advanced technologies have put the oil industry in a bright spot, expecting it to grow significantly in the near-term. Therefore, investors could watch fundamentally robust oil stocks BP p.l.c. (BP), Petróleo Brasileiro S.A. – Petrobras (PBR), and Cheniere Energy Partners, L.P. (CQP) for returns in April.
OPEC projects global oil demand to expand by 2.2 million bpd in 2024 and 1.8 million bpd annual growth next year. Brent and U.S. WTI futures contracts rallied recently due to growing concerns about the potential for a supply deficit during the peak summer driving season, potentially arising from production cuts from OPEC+, Ukrainian drone attacks on Russian refineries, and retaliatory attacks on Ukrainian oil facilities, and tensions in the Middle East.
Bank of America energy analysts have boosted their price forecast for Brent for this year to average at $86 per barrel and peak at $95 per barrel this summer. It anticipates WTI to reach $81 a barrel.
The oil and gas market is forecasted to reach $9.35 trillion by 2028, growing at a CAGR of 5.2%, driven by resource exploration, governmental initiatives, and investments in developing nations.
Moreover, oil companies have started integrating advanced technologies like artificial intelligence (AI) and utilizing them for their exploration and output processes to cut costs and enhance operations. This digital adoption has transformed the industry, leading it to make smarter and more efficient decisions, which will significantly contribute to the growth of the oil sector.
To that end, let’s examine the fundamentals of the three stocks to watch in the oil industry.
BP p.l.c. (BP)
Headquartered in London, the United Kingdom, BP provides carbon products and services. The company operates through Gas & Low Carbon Energy; Oil Production & Operations; and Customers & Products segments.
On March 11, BP announced the early tender results for the previously announced cash tender offer by its wholly-owned subsidiary BP Capital Markets p.l.c. to purchase for cash any validly tendered and accepted notes up to an aggregate principal amount of $1.3 billion of notes issued by the offeror.
Its annualized dividend of $1.74 per share translates to a dividend yield of 4.51% on the current share price. Its four-year average yield is 5.79%. Over the past three years, BP’s dividend payments have grown at a 2.7% CAGR.
BP’s trailing-12-month cash from operations of $32.04 billion is significantly higher than the industry average of $667.91 million. Its trailing-12-month ROCE and ROTC of 22.12% and 11.53% are 26% and 39% higher than the industry averages of 17.56% and 8.29%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, BP’s total revenues and other income, and profit before interest and taxation stood at $52.59 billion and $2.08 billion, respectively. Moreover, its adjusted EBITDA stood at $10.57 billion.
For the same quarter, its profit for the period attributable to BP shareholders and profit for the period attributable to BP shareholders per ADS stood at $371 million and $0.13, respectively.
Street expects BP’s revenue for the fiscal first quarter that ended March 2024 to increase marginally year-over-year to $56.43 billion. Its EPS is expected to be $1.05 for the same quarter.
The stock has gained 9.5% over the past nine months to close the last trading session at $38.66. Over the past month, it has gained 8%.
BP’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
BP has a B grade for Value, Momentum, and Quality. Within the A-rated Foreign Oil & Gas industry, it is ranked #16 out of 40 stocks.
To see additional POWR Ratings for Growth, Stability, and Sentiment for BP, click here.
Petróleo Brasileiro S.A. – Petrobras (PBR)
Headquartered in Rio de Janeiro, Brazil, PBR explores, produces, and sells oil and gas in Brazil and internationally. The company operates through Exploration and Production; Refining, Transportation and Marketing; and Gas and Power segments.
Its annualized dividend of $2.94 per share translates to a dividend yield of 19.66% on the current share price. Its four-year average yield is 22.70%. Over the past three years, PBR’s dividend payments have grown at a 54.7% CAGR.
PBR’s trailing-12-month cash from operations of $44.46 billion is significantly higher than the industry average of $667.91 million. Its trailing-12-month net income and levered FCF margins of 24.34% and 28.41% are 86.7% and 344.9% higher than the industry averages of 13.04% and 6.39%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, PBR’s sales revenues stood at $27.11 billion, while gross profit increased marginally year-over-year to $14.65 billion. Moreover, its adjusted EBITDA stood at $13.47 billion.
For the same quarter, its net income attributable to shareholders of PBR and net cash provided by operating activities stood at $6.26 billion and $11.67 billion, respectively.
Street expects PBR’s revenue and EPS for the fiscal first quarter that ended March 2024 to be $25.33 billion and $0.91, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 48.6% over the past year to close the last trading session at $15.49. Over the past nine months, it has gained 13.9%.
PBR’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
PBR has an A grade for Quality and a B for Momentum. Within the Foreign Oil & Gas industry, it is ranked #10.
For PBR’s other ratings (Growth, Value, Stability, and Sentiment), click here.
Cheniere Energy Partners, L.P. (CQP)
CQP provides liquefied natural gas (LNG) to integrated energy companies, utilities, and energy trading companies worldwide. It owns and operates natural gas liquefaction and export facility at the Sabine Pass LNG production terminal.
On February 7, CQP distributed cash of $1.04 per common unit to unitholders that comprised of a base amount equal to $0.78 and a variable amount equal to $0.26, and the related distribution to its general partner. Its annualized dividend of $4.13 per share translates to a dividend yield of 8.40% on the current share price. Its four-year average yield is 2.03%.
CQP’s trailing-12-month cash from operations of $3.11 billion is 365.5% higher than the industry average of $667.91 million. Its trailing-12-month ROTC and ROTA of 21.41% and 23.50% are 158.2% and 251.9% higher than the industry averages of 8.29% and 6.68%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, CQP’s total revenues and income from operations stood at $2.69 billion and $1.10 billion, respectively. Moreover, its adjusted EBITDA stood at $1.05 billion. For the same quarter, its net income, and basic and adjusted net income per common unit stood at $906 million and $1.42, respectively.
Street expects CQP’s revenue and EPS for the fiscal first quarter that ended March 2024 to be $2.21 billion and $1.09, respectively.
The stock has gained 4.1% over the past year to close the last trading session at $48.42.
CQP’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
CQP has a B grade for Momentum, Sentiment, and Quality. It is ranked #10 out of 24 stocks within the A-rated MLPs – Oil & Gas industry.
Click here for the additional POWR Ratings for CQP (Growth, Value, and Stability).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
BP shares fell $0.02 (-0.05%) in premarket trading Monday. Year-to-date, BP has gained 10.54%, versus a 9.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor’s degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals.
Neha’s primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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