Oil prices are rising, seemingly triggered by escalating geopolitical tensions, particularly the Israel-Hamas conflict, heightening concerns about potential disruptions in Middle East supplies. This unease is being further compounded by the looming threat of U.S. sanctions on Iran and the possibility of Hezbollah's involvement.
To capitalize on this, it could be wise to consider investing in fundamentally sound energy stocks USA Compression Partners, L.P. (USAC), Global Partners LP (GLP), and Cheniere Energy Partners, L.P. (CQP).
Before delving deeper into the fundamentals of these stocks, let's look at factors shaping the energy industry’s prospects.
Global energy prices concluded the week on a turbulent note, reflecting the prevailing uncertainty in the market. The price of Brent crude surged by over 4% on Friday, reaching nearly $90 per barrel. Simultaneously, West Texas Intermediate crude oil futures, the U.S. benchmark, saw an increase of 4.2%, landing at $86 per barrel.
The underlying catalyst for this appears to be the conflict in Israel and the growing concern that the impact could extend to the broader oil-rich Middle East region. A senior market analyst at Oanda, Edward Moya, said, "There are fears that, even as we see US production hit record levels, we could see a major shock to supplies in the near future."
Interestingly, American oil production has risen, reaching a peak of 13.2 million barrels per day in the first week of October, surpassing the previous record set in 2020 by 100,000 barrels. This dramatic increase signifies the substantial growth in domestic oil production over the past decade.
However, the escalating Israel-Hamas conflict triggering a surge in global oil prices raises concerns about the potential for broader Middle East unrest that could imperil the world's oil reserves. S&P Global has even warned of the possibility of oil prices surging past the $100 per barrel mark.
Adding to these concerns, S&P Global has also highlighted the impact of new U.S. sanctions on Iran and looming threats to Middle East shipping and infrastructure, potentially jeopardizing 500,000 barrels per day of Iranian oil exports.
This situation is particularly worrisome as the global oil supply was already strained before the conflict, with the potential to have far-reaching ramifications on the global economy.
Furthermore, the President of Rapidan Energy Group, Bob McNally, has foreseen that the Israel-Iran conflict could rapidly drive oil prices up by $5 to $10. This alarming possibility is rooted in the significance of the Strait of Hormuz between Oman and Iran, which serves as a crucial chokepoint for 40% of global oil exports.
McNally emphasized that the escalation in crude prices could rise even higher if Hezbollah, the Lebanese militant group, becomes involved. He asserts, "The real concern for the oil market, triggering a substantial price surge, lies in the perceived risk of the conflict spreading to Hezbollah in Lebanon."
In light of these trends, let’s look at the fundamentals of the three MLPs - Oil & Gas stock picks, beginning with number 3.
Stock #3: USA Compression Partners, L.P. (USAC)
USAC offers natural gas compression services, serving oil companies, independent producers, processors, gatherers, and transporters of natural gas and crude oil. Its primary focus lies in supporting infrastructure applications like centralized gas gathering systems, processing facilities, and gas lift applications for crude oil wells.
USAC's impressive second-quarter performance set consecutive records for revenues, Adjusted EBITDA, and Distributable Cash Flow, significantly enhancing overall company performance. Its fleet achieved a utilization exit rate exceeding 93%, with around 3.35 million revenue-generating horsepower, reflecting substantial operational success.
Also, USAC's forward-looking strategy, centered on exemplary customer service and stringent capital management, is poised to maintain robust financial performance. This approach would decrease the leverage ratio to around 4.5x by quarter-end while enhancing distribution coverage, reaching 1.30x in the second quarter.
For the second quarter that ended June 30, 2023, USAC’s total revenues increased 20.7% year-over-year to $206.92 million. Its adjusted EBITDA grew 18.6% from the year-ago value to $125 million.
In addition, the company’s net income rose 159.6% from the prior year’s quarter to $23.58 million, while net income per common unit came in at $0.11, compared to a loss per common unit of $0.03 in the previous year’s period.
The consensus revenue estimate of $908.85 million for the fiscal year ending December 2024 reflects an 8.7% year-over-year improvement. Likewise, the consensus EPS estimate of $0.56 reflects an 85.6% rise from the prior year. USAC’s shares have gained 42.8% over the past year to close the last trading session at $25.64.
USAC’s positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
USAC has an A grade for Growth and Momentum and a B for Sentiment and Quality. It has ranked #9 out of 26 stocks within the A-rated MLPs - Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see USAC’s ratings for Value and Stability here.
Stock #2: Global Partners LP (GLP)
GLP engages in the procurement, sale, blending, storage, and efficient logistics for gasoline, gasoline blendstocks, distillates, residual oil, renewable fuels, crude oil, and propane. The company serves wholesalers, retailers, and commercial clients, and it is also involved in the transportation of petroleum products and renewable fuels.
On March 29, GLP and ExxonMobil inked a deal to purchase 64 convenience and fueling facilities in Houston from the Landmark Group. GLP's established history of acquiring, integrating, optimizing, and successfully operating assets, evident in its growth and performance in the Northeast and mid-Atlantic, underlines its capability.
In 2022, GLP acquired 120 retail assets in the Northeast and mid-Atlantic regions, utilizing both company-operated retail stores and dealer supply agreements. The recent contract demonstrates GLP’s strategic prowess, strong relationships, and operational expertise in venturing beyond its existing presence into the Houston, Texas market.
For the second quarter that ended June 30, 2023, GLP’s gross profit from the Gasoline Distribution and Station Operations segment increased marginally year-over-year to $199.08 million. The company also registered a net income and net income per common limited partner unit of $41.39 million and $1.05, respectively.
Additionally, as of June 30, 2023, the company’s cash and cash equivalents came in at $11.04 million, compared to $4.04 million as of December 31, 2022. Its total assets amounted to $2.94 billion as of December 31, 2022.
The consensus revenue estimate of $21.01 billion for the fiscal year ending December 2024 reflects a 22.4% year-over-year improvement. Likewise, the consensus EPS estimate of $3.69 reflects a 6.7% rise from the prior year. Also, the company surpassed the consensus EPS estimates in three of the four trailing quarters.
Over the past year, GLP has gained 18.1%, closing the last trading session at $30.78.
GLP’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.
GLP has an A grade for Value and a B for Momentum and Sentiment. It has ranked #5 out of 26 stocks within the MLPs - Oil & Gas industry. Click here to access additional GLP ratings for Growth, Stability, and Quality.
Stock #1: Cheniere Energy Partners, L.P. (CQP)
CQP supplies liquefied natural gas (LNG) to integrated energy firms, utilities, and energy trading enterprises. It possesses and operates the natural gas liquefaction and export facility in Sabine Pass, Louisiana, boasting six operational trains. The company's LNG production capacity stands at approximately 30 million tons per annum (MTPA).
On February 23, CQP's subsidiaries commenced a pre-filing review with the Federal Energy Regulatory Commission (FERC) for the Sabine Pass Stage 5 Expansion Project near the Sabine Pass Liquefaction Project.
This expansion, designed to yield 20 million tonnes of LNG annually, capitalizes on existing infrastructure and optimized ship loading, positioning CQP for enhanced competitiveness and growth in the LNG market.
During the second quarter that ended June 30, 2023, CQP registered total revenues of $1.93 billion. Its income from operations rose 47.4% year-over-year to $818 million. Moreover, the company’s net income and net income per common unit rose 81.9% and 236% from the prior year’s period to $622 million and $0.84, respectively.
Analysts expect CQP’s revenue to grow 7.4% year-over-year to $10.58 million for the fiscal year ending December 2024. Also, the company surpassed the consensus EPS estimates in three of four trailing quarters, which is impressive. The stock has gained 18.6% over the past six months, closing the last trading session at $54.84.
CQP’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
CQP has a B grade for Momentum and Quality. It is ranked #2 within the same industry. Click here to access the additional CQP ratings (Growth, Value, Stability, and Sentiment).
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CQP shares were trading at $54.86 per share on Monday afternoon, up $0.02 (+0.04%). Year-to-date, CQP has gained 2.74%, versus a 15.28% 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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