Energy stocks ended the week on a positive note, with the energy sector’s ETF, the XLE, closing Friday’s trading up more than 2%, its biggest one-day gain in a month. There have been uncertainties regarding global demand lately, but there may be reason to believe that the oil market is starting to show signs of tightening.
Shares of energy companies rallied higher during the session, but the question is which stocks are poised for further gains? A dive into the data will help us sort out the most likely winners in this sector – which brings us to the Smart Score.
The Smart scoring uses advanced AI data algorithms to measure each publicly traded stock against a set of factors known to contribute to future outperformance, then aggregates those measurements and gives each stock a single-digit score, on a scale of 1 to 10, that ranks the stock indicates ‘probable short-term path. It sounds like a mouthful, but the bottom line is simple: a stock that ticks all the boxes with a ‘Perfect 10’ on the Smart Score deserves closer consideration.
That’s why we took a closer look at two energy stocks that earned the ‘Perfect 10’. Here are their details, along with comments from street analysts.
We are going to work with a giant of the energy industry, Shell Oil. This UK-based oil and gas production company is one of the largest in the world when measured by total turnover or by assets. Shell ended last year with $443 billion in total assets and more than $380 billion in annual revenues. The company has particularly strong positions in the liquefied natural gas sector, deep water exploration and extraction, and the shale oil and gas extraction segment. The first of these is a major undertaking, especially in the world natural gas trade; the last two are important operations in the extraction of fossil fuel energy from less accessible sources and formations.
Shell’s overall business is divided into four segments: upstream, integrated solutions for gas, renewables and energy, and downstream. On the B2C side, Shell provides direct energy supplies, including fuels, to more than 32 million customers. In addition, the company has a projects and technology division that works on innovative new energy technology projects and improvements in the technical capabilities that underpin the company’s activities.
For the last reported quarter, 1Q23, Shell saw sales of $86.96 billion. While first-quarter revenue was down from $101.3 billion in the prior quarter, first-quarter revenue was up 3.27% year-over-year. The company’s adjusted net income was $9.65 billion, or adjusted non-GAAP earnings per share of $1.39. The EPS figure was flat quarter-over-quarter and up 19 cents year-over-year.
Although Shell’s cash generation declined year-over-year, the company still generated strong cash results in the first quarter. Cash flow from operations was reported at $14.16 billion, down 4.4% year-over-year, while free cash flow was reported at $9.9 billion, down 6% from the prior year. The company’s cash flow supported the dividend payment of 57.5 cents per U.S. certificate share. This offers a return of 3.67%.
Shell’s ‘Perfect 10’ from the Smart Score is based on positive statistics almost everywhere. Of particular note, we’ll point out blogger sentiment, which is 82% positive, public wisdom, which is positive and based on a 2.2% increase in private ownership over the last 30 days, some solid technical and fundamental factors: 26% momentum of change over 12 months and return on equity of 23% over 12 months.
Analyst Michele Della Vigna covers this stock for Goldman and explains the reasons for his bullish stance on this energy giant. He writes: “Continued capital discipline has helped reposition Shell’s upstream portfolio higher on the profitability cost curve. We expect this positive trend to continue, driven by a significant operational performance benefit in both deepwater (Brazil and GoM) and LNG asset uptime. Using our Top Projects analysis, a strong pipeline of oil and gas projects can help sustain high cash flows for a number of European Big Oils, screening Shell as one of the best in production and cash flow growth in the next four years.”
Looking ahead, Della Vigna rates SHEL stock a buy, with a price target of $83 per US depository share, suggesting 39% one-year upside potential. (To view Della Vigna’s track record, click here.)
The 10 recent analyst reviews on SHEL, with a 9 to 1 split in favor of Buy over Hold and a Strong Buy consensus rating, show that the Street is bullish here. The stock’s average price target of $71.18 implies a one-year gain of 19% from its current trading price of $59.65. (See Shell’s inventory forecast.)
Enerplus, the second stock we’re looking at, started out as Canada’s first oil and gas royalty trust, and today has a strong foothold as an independent exploration and production company operating in North Dakota’s Bakken-Three Forks light oil shale game. Over the past 15 years, this formation has become one of the richest manufacturing regions in North America and has fueled strong economic growth in both North and South Dakota.
The company owns approximately 235,600 net acres in the Bakken’s North Dakota territories, making it the company’s largest holding. In addition, Enerplus has 32,500 net hectares in the Marcellus shale, the major drying gas production region in Pennsylvania’s Appalachian Mountains. Last year Enerplus saw 65,370 barrels of oil equivalent daily production from the Bakken position, and 169 MMcf per day dry gas production from the Marcellus. Total production in 2022 was 100,326 barrels of oil equivalent per day, of which 39% was natural gas and 61% was crude oil and natural gas liquids.
Production at that scale will deliver solid financial results and Enerplus saw sales of $441 million in the first quarter of this year. This was up from $306 million in 1Q22, for a 44% year-over-year increase. In the end, Enerplus had net income of $137.5 million for Q1, or 63 cents per share. This was a strong improvement over the prior year quarter of 14 cents per share. In addition, 1Q23 earnings per share were 2 cents higher than guidance.
Enerplus has also taken a leading position in the ESG field. This is essentially a measure of ‘good corporate social responsibility’ and Enerplus has initiatives to promote occupational health and safety along with good environmental stewardship. The company has developed social and governance policies to ensure these initiatives while maintaining regulatory compliance and stakeholder benefits.
On that “Perfect 10” Smart Score, ERF shares are benefiting from the solid bullish – 100% positive – sentiment from the financial bloggers. In addition, the stock’s 12-month return on equity was more than 117%, and the hedges tracked by TipRanks increased their positions in ERF by 37,700 shares last quarter.
In the eyes of Mike Murphy, BMO’s 5-star analyst, Enerplus has plenty to offer investors. Murphy is particularly impressed with the company’s return on capital and the potential to expand its position i
n the Bakken. Murphy writes, “We continue to believe Enerplus is well positioned to deliver on its capital return initiatives, with Bakken-focused M&A in the near to medium term… We view Enerplus as an outperformer of the rest of the Canadian E&P market. names from an ESG perspective. The company scores favorably from an emission intensity point of view and in diversity metrics.”
Murphy supplements his comments with an Outperform (Buy) rating and a $19 price target, implying a potential gain of 29% on the one-year time horizon. (To view Murphy’s track record, click here.)
There have been 5 recent analyst ratings of Enerplus stock, including 4 to buy and 1 to hold – giving the stock a Strong Buy consensus rating. The shares are selling for $14.72 and their average price target of $19.54 is slightly more bullish than Murphy’s, suggesting a 33% one-year upside. (See Enerplus’ stock 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.