There is a reason why the phrase “buy low, sell high” is overused. The best opportunities often come after a pullback, and the investment experts at JPMorgan are happy to point them out.
They keep a close eye on the energy market and see a lot of promise in energy companies. The banking giant is showing a positive view on two specific energy stocks, with the pair offering different value propositions. That said, both underperformed the market this year, but JPM’s analysts expect a potential increase of 40% or more from current levels.
We ran these tickers through the TipRanks database to also get a feel for the Street’s overall take on these names. Let’s see the details.
Bloom energy (ARE)
The first is Bloom Energy, a clean energy industry company, which is working to generate and store electrical energy through the use of solid oxide fuel cell technology. Solid oxide fuel cells use a chemical reaction – the oxidation of a fuel – to produce directly usable electricity. The cells offer a solution to problems of resilience and sustainability in clean energy, along with an electricity supply that is both reliable and predictable. In addition, Bloom’s solid oxide cells generate only one waste product, hydrogen, an element that is non-polluting and useful in energy and fuel applications. The fuel cells provide efficient, combustion-free energy, without any form of carbon emission.
Bloom’s platform, the Energy Server, is designed to always provide power, available on customer demand, without the need to turn on a generator. The Energy Server can be instantly scaled to customer needs and offers a flexible energy source for any purpose. Bloom is already working with major companies, such as oilfield service company Baker Hughes, to provide clean energy alternatives.
Bloom Energy saw its most recent share spike in February of this year, but since then the stock has fallen more than 46%, even though earnings are up year-over-year.
In its latest financial report, for 1Q23, the company had revenue of $275 million, up nearly 37% from the same period a year ago and beating forecast by $19.1 million. On the negative side, earnings came in at a net loss; the non-GAAP EPS figure was -$0.22, better than the 32 cent loss reported in 1Q22, but 1 cent worse than expected. On a year-over-year basis, the company’s gross margin improved from 15.8% to 21.2%. The company did burn cash in the first quarter, with liquid assets down $28 million, but it still has $320 million in cash and cash equivalents on hand.
For JPM’s 5-star analyst Mark Strouse, this all adds up to a company worth taking another look at. Strouse writes, “We believe the recent pullback, since mid-February, has been exaggerated and investors can take advantage of the volatility to add exposure to a stock that we believe will benefit from the energy transition over the long term. .While acknowledging that Q1 EBITDA margins were subdued, we believe this was primarily driven by higher-than-expected operating expenses due to the timing of the expenses.We believe that gross margin trajectory over the past years is encouraging, with FY23 outlook implying record highs, and we expect further improvement as the supply chain normalizes and the company returns to its historic cadence of double-digit annual cost reductions.”
“We note that BE’s balance sheet remains in good shape with ~$33 million in net cash as of 1Q ($320mm of unrestricted cash minus $288mm of recourse debt), which we believe is comforting in the current capital markets situation” Strouse continued. add. “In our view, improving gross margins and the relative strength of the balance sheet allow further growth-oriented business investments as operating leverage increases over time.”
Looking ahead based on these comments, Strouse gives BE stock an Overweight (Buy) rating, with a $20 price target to suggest 43% upside potential over a year. (To view Strouse’s track record, click here.)
We now move to the rest of the street where BE shares get a moderate buy from the analyst consensus, based on another buy 4 and hold 5. The stock is selling for $13.99 and its $24.32 average price target implies a 74% gain over the next year. (See Bloom’s inventory forecast.)
PBF Energy (PBF)
For the second stock on our shortlist, we are switching from alternative energy to the traditional hydrocarbon energy sector. PBF Energy is one of the largest independent crude oil refiners in the US market, producing and distributing a wide variety of petroleum products, including heating oil, transportation fuels, lubricating oils and petrochemical feedstocks. These products are distributed as unbranded fuels, partly through PBF’s own logistics operations. These operations include storage facilities, marine vessels and tank trucks, as well as the Delaware Pipeline Company.
PBF’s refinery operations are extensive and include refineries in Delaware City, DE; Paulsboro, New Jersey; Toledo, OH; New Orleans, Los Angeles; and Torrance and Martinez, both in CA. The facilities have a combined production capacity of 973,000 barrels per day.
This is big business, and in its most recent quarterly release, from 1Q23, the company had revenue of $9.29 billion, $903 million more than expected and up 2% year-over-year. The company’s income, reported at $2.86 per diluted share in non-GAAP measures, was a sharp reversal from the 18 cent loss reported a year earlier — beating forecast by 26 cents. In addition, PBF increased its share repurchase authorization from the previous $500 million to $1.0 billion.
Pre-COVID, the company paid a regular dividend, but that ended with the February 2020 payment. However, in November last year, the dividend was reinstated at 20 cents per share. PBF declared it again on May 5, for a payout on May 31. This marks the third quarter of the renewed dividend payment, which is annualized at 80 cents per common share and yields a 2% return, in line with market averages.
With all that, the stock has continued to drop in recent months. Shares in PBF peaked at about $48 this year in March, and are down 18% from that level.
This stock’s pullback has caught the attention of analyst John Royall, who said in his note to JPM, “We believe current levels of PBF are attractive, especially after 2023 trading, given the improvements in the company’s balance sheet. . The company created significant equity value by reducing net debt, while creating significant incremental value with the $800mm+ sale of half of its stake in the Chalmette RD project (given ~$675mm project cost at 100% base). Further, with PBF buying back shares and paying a dividend, the lack of capital return to shareholders is no longer a negative for PBF’s position, while the buyback should continue in a less constructive crack environment.”
To quantify his stance, Royall set an Overweight (Buy) rating and a $56 price target for the stock, implying a 43% upside on the one-year horizon. (To view Royall’s track record, click here.)
Again, we’re looking at a stock with an average buy consensus score, based on a total
of 5 buy and 4 hold. Shares in PBF are priced at $39.25, and the $47.56 average price target suggests the stock will gain 21% over the next 12 months. (See PBF’s inventory forecast.)
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Disclaimer: The opinions expressed in this article are solely those of the recommended analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.