Gas stocks Marathon Petroleum Corporation (MPC), CVR Energy, Inc. (CVI), and Epsilon Energy Ltd. (EPSN) could be ideal investments to capitalize on steadily increasing demand for oil and gas from Asian economies amid constrained supplies due to turbulent geopolitics.
Before delving deeper into the fundamentals of each of these stocks, let's take a look at what's happening in the energy sector.
Despite vows to fight climate change during his presidential campaign back in 2020, the geopolitically and macroeconomically topsy-turvy world of 2023 has compelled Joe Biden to adopt a more pragmatic approach toward oil drilling in the Alaskan Arctic. On March 13, his administration approved the massive Willow oil-drilling project in the Alaskan Arctic.
This has cleared the path for ConocoPhillips (COP) to start construction on its roughly $7 billion project in Alaska’s National Petroleum Reserve, which the company expects will produce about 180,000 barrels of oil a day at its peak.
Since the beginning of the conflict in Ukraine, the redrawing of the global energy map and shifting geopolitical inclinations in the Middle East have been nothing short of a windfall for U.S. energy producers. The United States has “gone from (being) a very domestically focused market into an international powerhouse.”
Although oil and gas prices have retreated from their peaks due to macroeconomic uncertainties caused by inflation and high-interest rates, the reopening of China, Europe’s increasing reliance on American shipments, and Russia’s announcement of a voluntary production cut of 500,000 barrels a day increase the likelihood of price increases toward the second half of the current fiscal year.
Moreover, as energy companies are treading carefully with the energy transition and have been slow to reinvest the cash flooding in, most businesses are promising healthy shareholder returns.
Let’s take a closer look at the featured stocks.
Marathon Petroleum Corporation (MPC)
MPC is involved in midstream and downstream businesses, such as petroleum product refining, marketing, and retail in the United States. The company operates through two segments: Refining & Marketing and Midstream transport.
On March 10, MPC paid its quarterly dividend of $0.75 per share of common stock. The company pays $3.00 annually as dividends, which translates to a forward yield of 2.36% at the current price. Dividend payouts have grown at a 10.4% CAGR over the past five years.
In addition to paying out $1.3 billion as dividends, MPC returned another $11.9 billion of capital to shareholders in 2022 through share repurchases. This brought the total repurchases to almost $17 billion since May 2021. In addition, the company also announced an incremental share repurchase authorization of $5 billion. As a result, the company has $7.6 billion in remaining repurchase authorization.
On March 8, MPC announced the acquisition of a 49.9% interest in LF Bioenergy, an emerging renewable natural gas (RNG) producer in the United States, from Cresta Fund Management for $50 million. The agreement includes the potential for up to an additional $50 million based on achieving predetermined earn-out targets.
This transaction demonstrates the company’s commitment to low-carbon investments.
For the fiscal year (ended December 31, 2022), MPC’s total revenues and other income increased 48.8% year-over-year to $179.95 billion, while its adjusted EBITDA from continuing operations increased 171.7% year-over-year to $24.34 billion due to improving operational and commercial execution as the refining system operated at 96% utilization to meet demand.
As a result, adjusted net income attributable to MPC came in at $13.50 billion or $26.16 per share, compared to $1.56 billion or $2.45 per share during the previous fiscal year.
Analysts expect MPC’s EPS for the first quarter of fiscal 2023 to come in at $5.50, compared to $1.45 a year ago. Moreover, the company has surpassed its consensus EPS estimates in each of the trailing four quarters.
MPC’s stock has gained 2.5% over the past month and 32.3% over the past six months to close the last trading session at $126.98.
MPC’s fundamental strength is reflected in its overall A rating, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MPC also has an A grade for Quality and Momentum and a B for Growth and Sentiment.
Unsurprisingly, MPC tops the list of 90 stocks in the B-rated Energy – Oil & Gas industry.
Click here for additional POWR Ratings for MPC’s Value and Stability.
CVR Energy, Inc. (CVI)
CVI is a diversified holding company with interests in renewable fuels, petroleum refining and marketing, and fertilizer manufacturing. The Company operates through two segments: Petroleum and Nitrogen Fertilizer.
On March 13, CVI paid its increased fourth-quarter 2022 cash dividend of $0.50 per share. Including special dividends, the cumulative cash dividends paid for 2022 came in at $5.30 per share. The company’s annual dividend payout of $2.00 per share translates to a forward yield of 6.45% at the current price.
On November 21, 2022, CVI announced that its board of directors authorized its management to explore a potential spin-off of its interests in its nitrogen fertilizer business, which CVR Energy owns through the general and limited partner interests it holds in CVR Partners, LP (UAN), a publicly-traded limited partnership.
If CVI proceeds with the spin-off, it will create a new public company to hold such interests and separate the nitrogen fertilizer business from CVR Energy’s refining and renewables businesses. It is likely to be structured as a tax-free, pro-rata distribution to all stockholders of CVI on a specified record date that the company’s board would determine.
According to CEO Dave Lamp, “CVR Energy reported strong results for the 2022 full year, primarily due to an increase in the Group 3 2-1-1 crack spread driven by tight inventory levels.” For the fiscal year that ended December 31, 2022, CVI’s net sales increased 50.5% year-over-year to $10.90 billion.
During the same period, CVI’s adjusted EBITDA and net income attributable to its shareholders came in at $1.37 billion and $463 million, compared to $301 billion and $25 million during the previous fiscal year. As a result, CVI reported adjusted earnings of $6.04 per share, compared to an adjusted loss per share of $0.93 in the previous fiscal year.
Analysts expect CVI’s EPS for the first quarter of fiscal 2023 to come in at $0.91, compared to $0.02 a year ago. The stock has gained 9.4% over the past month and 52.2% over the past year to close its last trading session at $31.01.
CVI has an overall B rating, translating to Buy in our POWR Ratings system. The stock has an A grade for Momentum and Quality and a B for Growth and Quality.
CVI is ranked #13 of 90 stocks in the B-rated Energy - Oil & Gas industry.
Click here to access additional POWR Ratings for Growth, Stability, Value, and Sentiment for CVI.
Epsilon Energy Ltd. (EPSN)
EPSN is involved in onshore production and midstream operations, focusing on the Marcellus Shale of Pennsylvania. The company is engaged in acquiring, developing, gathering, and producing natural gas and oil reserves and operates through three segments: Upstream, Gathering System, and Corporate.
On March 8, EPSN announced its quarterly dividend of $0.06 per common share. The company pays $0.25 annually as dividends which translates to a yield of 4.89% at the current price, higher than its four-year average dividend yield of 0.64%.
For the fiscal third quarter (ended September 30, 2022), EPSN’s total revenues increased 62.2% year-over-year to $21.24 million, driven by a strong market for natural gas coupled with the higher-than-forecasted Koromlan 107HC well results. During the same period, the company’s adjusted EBITDA increased 143.7% year-over-year to $16.54 million.
As a result, EPSN’s net comprehensive income came in at $9.57 million or $0.42 per share, compared to $1.40 million or $0.06 per share in the year-ago period.
EPSN’s stock has dipped 4.4% over the past month to close the last trading session at $5.11.
EPSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Quality and a B for Value and Sentiment.
Consequently, EPSN is ranked #2 in the same industry. Click here to see the additional POWR Ratings for EPSN’s Growth, Stability, and Momentum.
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MPC shares were trading at $127.78 per share on Thursday afternoon, up $0.80 (+0.63%). Year-to-date, MPC has gained 10.43%, versus a 4.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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