Despite the persistent macroeconomic headwinds, the energy industry's long-term outlook appears bright owing to rapid urbanization and the sluggish energy transition. Thus, energy stocks Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), and Cross Timbers Royalty Trust (CRT), backed by their Quality and Momentum, could be ideal additions to your watchlist.
Let’s understand this detail.
With the transition to clean energy demanding extensive time, considerable funds, and yet-to-be-invented technologies, the oil and gas sector is projected to retain its leading energy roles for decades.
The critical role of oil in commercial transportation and chemical sectors, amplified by rapid urbanization, is further bolstering the industry. OPEC's Secretary General, Haitham Al Ghai, envisions global oil demand soaring to 110 million barrels a day in about 20 years.
In addition, the U.S. Energy Information Administration (EIA) projects a 15% increase in U.S. natural gas production and a significant 152% rise in Liquefied Natural Gas (LNG) exports by 2050. During the same period, natural gas production is expected to reach 42.1 trillion cubic feet (Tcf), driven by a rise in LNG exports to 10 Tcf.
The energy sector's long-term outlook appears promising. However, prevailing macroeconomic headwinds have prompted the International Energy Agency (IEA) to lower its 2023 growth estimate. Stringent monetary policies in advanced and developing nations are contributing to a manufacturing slump and increasing global oil demand pressure.
The leading energy watchdog projects a 2.2 million barrels per day increase in global oil demand for 2023, averaging 102.1 million barrels per day. This revises last month's forecast down by 220,000 barrels per day from a 2.4 million barrels per day worldwide growth prediction.
While the energy industry is presently facing challenges, it continues to hold a promising long-term outlook. In view of this, energy stocks XOM, CVX, and CRT, backed by their robust profitability and solid momentum, could be solid watchlist additions.
Let’s delve into the fundamentals of the featured stocks.
Exxon Mobil Corporation (XOM)
XOM explores and produces crude oil and natural gas. It also manufactures, trades, transports, and sells petroleum products, petrochemicals, and specialty products. The company operates through four segments, Upstream; Energy Products; Chemical Products; and Specialty Products.
On July 13, XOM announced the acquisition of Denbury Inc. (DEN), a seasoned pioneer in carbon capture, utilization, and storage (CCS) techniques, and amplified oil recovery. The acquisition would bring about robust growth and returns for XOM, as well as grant it possession of the largest CO2 pipeline network in the United States, spanning 1,300 miles.
On March 16, XOM announced the successful startup of its Beaumont refinery expansion, which adds 250,000 bpd capacity to a major Gulf Coast refining and petrochemical complex. This would empower XOM to accommodate the skyrocketing demand for transportation fuels, providing the company with a competitive edge.
XOM’s trailing-12-month levered FCF margin of 11.3% is 91.4% higher than the 5.9% industry average. Also, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 33.54%, 20.39%, and 16.70% compare to the industry averages of 23.48%, 11.21%, and 9.16%, respectively.
For the first quarter that ended March 2023, XOM’s total revenues and other income came in at $86.56 billion. As of March 31, 2023, the company’s current assets stood at $97.22 billion, compared to $97.63 billion as of December 31, 2022.
However, net income attributable to XOM and earnings per common share grew 108.6% and 118% from the year-ago values to $11.43 billion and $2.79, respectively.
XOM’s revenue is expected to come in at $346.91 billion for fiscal 2023. The company’s EPS for the ongoing year is expected to be $9.32.
Shares of XOM have plummeted 7.4% over the past six months. However, it has also gained 17.3% over the past year to close the last trading session at $105.52. Moreover, the stock is trading above its 50-day moving average of $104.92.
XOM’s fundamentals are apparent in its POWR Ratings. XOM has an A grade for Momentum and Quality. It has ranked #37 in the 89-stock Energy - Oil & Gas industry. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
In addition to the POWR Ratings I’ve just highlighted, you can see XOM’s ratings for Sentiment, Value, Growth, and Stability here.
Chevron Corporation (CVX)
CVX manages investments in subsidiaries and affiliates and provides administrative, financial, and technological support to United States and international subsidiaries involved in integrated energy and chemicals operations. The company's segments include Upstream and Downstream.
On July 23, CVX disclosed its fiscal second quarter performance highlights, showcasing a new quarterly record of 772,000 barrels of oil equivalent per day in Permian Basin production. Also, with a deep resource inventory and advantageous royalty position, CVX anticipates robust cash flow until 2040.
Furthermore, on May 22, CVX unveiled its definitive agreement with PDC Energy, Inc. (PDCE) to acquire all outstanding shares at a total of $6.3 billion, or $72 per share. The acquisition of PDCE’s appealing and complementary assets is expected to fortify CVX's foothold in key U.S. production basins.
CVX’s trailing-12-month levered FCF margin of 13.01% is 120.2% higher than the 5.91% industry average. The stock’s asset turnover ratio of 0.92x is 42.7% higher than the industry average of 0.65x. Also, its trailing-12-month cash from operations of $48.75 billion compares to the $613.79 million industry average.
During the first quarter that ended March 31, 2023, CVX’s total revenue and other income came in at $50.79 billion. Its cash inflow from operating activities stood at $7.2 billion. The company’s total adjusted earnings and adjusted EPS came in at $6.74 billion and $3.55, indicating 3.1% and 5.7% year-over-year improvements, respectively.
The consensus revenue estimate stands at $195.93 billion for fiscal 2023. Similarly, the consensus EPS estimate is $13 for the current year.
Over the past six months, the stock has plunged 10.5%. However, CVX has also gained 4.4% over the past five days to close the last trading session at $161.82. Currently, the stock is trading above its 50-day moving average of $155.71.
CVX’s outlook is reflected in its POWR Ratings. It has an A grade for Momentum and a B for Quality. The stock is ranked #47 in the 89-stock Energy - Oil & Gas industry.
Click here to access additional CVX ratings (Growth, Stability, Value, and Sentiment).
Cross Timbers Royalty Trust (CRT)
CRT operates as an express trust, holding a 90% net profits interest in certain producing and non-producing royalty and overriding royalty interest properties in Texas, Oklahoma, and New Mexico. Additionally, it possesses a 75% net profit working interest in four properties in Texas and three in Oklahoma.
CRT’s trailing-12-month gross profit margin of 100% is 112.5% higher than the 47.05% industry average. Its trailing-12-month net income margin of 94.57% is 517.3% higher than the industry average of 15.32%. Moreover, the stock’s trailing-12-month asset turnover ratio of 3.07x is 374.4% higher than the industry average of 0.65x.
For the first quarter that ended March 31, 2023, CRT’s net profits income increased 100.5% year-over-year to $3.91 million. Its distributable income grew 116% from the year-ago value to $3.64 million, while distributable income per unit also rose 116% from the prior year’s period to $0.61.
As of March 31, 2023, the company assets came in at $4.91 million, compared to $4.86 million as of December 31, 2022.
Shares of CRT have plummeted 3.9% over the past month. However, it has also gained 20.4% over the past year to close the last trading session at $21.47. It is trading higher than its 10-day and 100-day moving averages of $19.88 and $20.27, respectively.
CRT’s outlook is apparent in its POWR Ratings. It has a B grade for Growth, Quality, and Momentum. It is ranked #26 out of 89 stocks within the same industry.
Click here to access additional CRT ratings for Stability, Value, and Sentiment.
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XOM shares were trading at $105.71 per share on Tuesday afternoon, up $0.19 (+0.18%). Year-to-date, XOM has declined -2.59%, versus a 20.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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