The energy services sector is poised for potentially robust growth, accelerated by the surge in oil and gas exploration and production worldwide. Given this backdrop, quality energy services stocks Liberty Energy Inc. (LBRT), ChampionX Corporation (CHX), and NOW Inc. (DNOW), displaying impressive gains, could be wise portfolio additions now.
Before analyzing the fundamentals of the stocks, let’s first briefly discuss the energy services sector’s dynamics.
Wall Street experts and investors are studying patterns in the oil markets to predict future trends. As per OPEC’s 2023 World Oil Outlook, global oil demand could reach 116 million barrels per day (bpd) by 2045. The surge could surpass expectations, with primary growth drivers being India, China, other Asian nations, Africa, and the Middle East. Moreover, by 2028, the global oil demand could hit around 110.2 million bpd.
As per data released by LSEG, U.S. liquefied natural gas (LNG) producers ramped up exports in October to 7.92 million metric tons, the second-highest monthly level on record.
The current and expected demand surge prompts exploration and production companies to seek fresh sources. Industry services like drilling, completion, production, and well interventions crucial to fulfilling these projections offer promising opportunities for prominent energy conglomerates.
Anticipating continued strong demand, oil and gas companies are increasing their extraction efforts by reinvesting a portion of their record-breaking profits.
In addition to the escalating oil demand, supply constraints resulting from the ongoing Israel-Hamas conflict and the OPEC+ and Russia’s sustained production cuts could keep oil prices up, creating a favorable environment for oil exploration and production operations.
Wood Mackenzie anticipates that oil and gas exploration expenditure could average $22 billion annually over the next five years.
Furthermore, the global oilfield services market is projected to reach $346.45 billion by 2027, growing at a CAGR of 6.6%. Also, SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has gained 22.7% over the past six months, substantiating investors’ interest.
Given the industry tailwinds, it’s time to examine the fundamentals of the top three stocks to buy in the Energy – Services industry, starting with the third in line.
Stock #3: Liberty Energy Inc. (LBRT)
LBRT offers hydraulic services and related technologies to onshore oil and natural gas exploration and production companies in North America. The company provides hydraulic fracturing and complementary services like wireline services, proppant delivery solutions, data analytics, related goods, and technologies.
The company returned $38 million to shareholders through share repurchases and a quarterly cash dividend. During the quarter ended September 30, 2023, LBRT repurchased and retired 1,784,899 shares of Class A common stock at an average of $16.38 per share, representing 1% of shares outstanding, for approximately $29 million.
The company has cumulatively repurchased and retired 10.6% of shares outstanding at program commencement on July 25, 2022. The total remaining authorization for future common share repurchases is approximately $211 million.
On October 17, LBRT’s board of directors declared a quarterly dividend of $0.07 per share of class A common stock, a 40% increase from the prior quarter’s dividend. It is payable to the shareholders on December 20, 2023.
Its annualized dividend rate of $0.28 per share translates to a dividend yield of 1.38% on the current share price. Its four-year average yield is 0.98%. LBRT’s dividend payments have grown at 26% and 32% CAGRs over the past three and five years, respectively.
LBRT’s trailing-12-month asset turnover ratio of 1.75x is 205.1% higher than the industry average of 0.57x. Its trailing-12-month ROCE, ROTC, and ROTA of 38.63%, 25.76%, and 19.97% are 88.4%, 162.8%, and 161.9% higher than the industry averages of 20.51%, 9.80%, and 7.62%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 64.2% and 18.1%, respectively, while its EBITDA grew at 189.9% and 22.3% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, LBRT’s revenue increased 2.3% year-over-year to $1.22 billion. Its operating income grew 12.2% from the year-ago quarter to $205.23 million. Also, the company’s adjusted EBITDA stood at $319.21 million, up 15.3% year-over-year.
Furthermore, net income attributable to LBRT stockholders was $148.61 million and $0.85 per share, representing increases of 1.1% and 9% from the prior year quarter, respectively.
Street expects LBRT’s revenue and EPS in the fiscal year ending December 2023 to increase 14.5% and 25.1% year-over-year to $4.75 billion and $3.27, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 26.4% year-to-date to close the last trading session at $20.23. Over the past six months, it gained 66.2%.
LBRT’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.
The stock has a B grade for Value and Momentum. Within the 48-stock Energy-Services industry, it is ranked #10.
For LBRT’s additional POWR Ratings for Growth, Stability, Sentiment, and Quality, click here.
Stock #2: ChampionX Corporation (CHX)
CHX provides chemistry solutions and engineered equipment and technologies to oil and gas companies worldwide. The company operates through four segments: Production Chemical Technologies; Production & Automation Technologies; Drilling Technologies; and Reservoir Chemical Technologies.
The company demonstrated its commitment to return excess cash to its shareholders. Through $68 million share repurchases and regular cash dividends of $17 million, it returned 52% of cash from operating activities and 74% of its free cash flow in the third quarter to its shareholders.
On October 27, CHX paid its shareholders a regular quarterly dividend of $0.085 per share on the company’s common stock, par value of $0.01 per share. Its annual dividend of $0.34 translates to a 1.09% yield on the current price. Its four-year average dividend yield is 0.33%.
CHX’s trailing-12-month asset turnover ratio of 1.13x is 97.9% higher than the 0.57x industry average. Likewise, its trailing-12-month levered FCF margin of 13.05% is 119.8% higher than the industry average of 5.94%.
CHX’s revenue have grown at 38.1% and 26.6% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 22.9% and 28.5% CAGRs over the past five years, respectively.
For the fiscal third quarter that ended September 30, 2023, CHX’s revenues stood at $939.78 million, while gross profit increased 48.5% year-over-year to $291.86 million. Its adjusted EBITDA stood at $189.54 million, up 14.1% from the year-ago quarter.
Adjusted net income attributable to CHX and adjusted earnings per share increased 19.3% and 24.2% year-over-year to $80.95 million and $0.41, respectively. For the nine months that ended September 30, 2023, cash and cash equivalents stood at $285.01 million, up 49.2% year-over-year.
Street expects CHX’s revenue for the fiscal fourth quarter ending December 2023 to be $964.13 million, while EPS is expected to be $0.44, representing a 2.8% year-over-year increase. It surpassed EPS estimates in three of the trailing four quarters.
The stock has gained 7.9% year-to-date to close its last trading session at $31.29. Moreover, over the past six months, it has gained 15.2%.
CHX’s POWR Ratings reflect a robust outlook. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It also has a B grade for Growth, Momentum, and Quality. It is ranked #8 within the industry.
Beyond what we’ve stated above, we have also rated the stock for Value, Stability, and Sentiment. Get all ratings of CHX here.
Stock #1: NOW Inc. (DNOW)
DNOW distributes products to the oil, gas, and industrial sectors. The company provides energy and industrial goods, along with meticulously engineered processes and production equipment. It operates under the brands DistributionNOW and DNOW, with segments spanning the United States, Canada, and the international market.
DNOW repurchased $5 million of common stock in the third quarter of 2023, showcasing the firm’s unwavering commitment to optimizing shareholder value.
DNOW’s trailing-12-month asset turnover ratio of 1.74x is 119.1% higher than the 0.79x industry average. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of 15.11%, 11.20%, and 9.59% are 18.4%, 63.3%, and 93.2% higher than the industry averages of 12.76%, 6.86%, and 4.96%, respectively.
DNOW’s revenue has grown at a 6.1% CAGR over the past three years. Moreover, its EBITDA and EBIT have grown at 14.3% and 25.5% CAGRs over the past five years.
During the fiscal third quarter that ended September 30, 2023, DNOW’s revenue increased 1.9% year-over-year to $588 million, while its operating profit stood at $37 million. Non-GAAP net income and non-GAAP earnings per share attributable to DNOW stockholders, excluding other costs, stood at $28 million and $0.25, respectively.
As of September 30, 2023, DNOW’s total current liabilities stood at $423 million, compared to $439 million as of December 31, 2022.
The consensus revenue and EPS estimates of $2.31 billion and $0.97 for the fiscal year ending December 2023 reflect 8.1% and 2.1% year-over-year improvements, respectively. Also, the company topped the consensus revenue and EPS estimates in three of the trailing four quarters.
Shares of DNOW have gained 1.3% intraday to close the last trading session at $10.83. Over the past six months, it gained 14.5%.
DNOW’s solid outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
DNOW has an A grade for Momentum and a B for Value and Quality. It has ranked #2 within the same industry.
Click here for additional DNOW ratings for Growth, Stability, and Sentiment.
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CHX shares were unchanged in premarket trading Monday. Year-to-date, CHX has gained 9.12%, versus a 14.93% rise in the benchmark S&P 500 index during the same period.
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