Driven by surging oil prices and enhanced well productivity, U.S. oil production is poised to witness continued growth in 2023 and beyond. Growing oil production would drive higher demand for energy services, benefiting companies that provide drilling, exploration, maintenance, and equipment supply as oil producers expand operations.
Given the industry’s bright growth prospects, fundamentally sound energy stocks Liberty Energy Inc. (LBRT), ProPetro Holding Corp. (PUMP), and Matrix Service Company (MTRX) could be ideal buys for under $20.
According to the latest IEA Oil Market Report (OMR), global oil demand is surging to record highs, driven by solid summer air travel, increased oil use in power generation, and rising Chinese petrochemical activity. World oil demand is expected to grow by 2.2 mb/d year-over-year to 102.2 mb/d in 2023, with China accounting for more than 70% of the increase.
In addition to the existing OPEC+ cuts, Saudi Arabia extended its 1 million barrels per day (bpd) voluntary production cut until the year-end. Also, fellow heavyweight oil producer Russia pledged to reduce oil exports by 300,000 barrels per day until the end of December 2023.
Amid growing demand and constrained supplies, JPMorgan’s head of EMEA energy equity research, Christyan Malek, warned of oil heading to $100. Goldman Sachs also rejoined the $100-a-barrel oil club. With prices rising by more than 30% since mid-June to breach $95 per barrel this month, the Wall Street bank increased its 12-month forecast for Brent to $100 a barrel from $93.
Further, the U.S. Energy Information Administration (EIA) forecasts the Brent crude oil price to approach $90 per barrel in late 2023. Bolstered by rising oil prices and higher well productivity, the agency expects continued growth in domestic oil production.
In its August Short-Term Energy Outlook (STEO), EIA forecasts U.S. crude oil production to average 12.80 million barrels per day this year, which is 200,000 barrels per day more than in its July forecasts. For the next year, U.S. oil output is projected to climb to another record of 13.10 million barrels per day.
As per a report by Consegic Business Intelligence, the global oilfield services market is expected to reach $468.58 billion by 2023, growing at a CAGR of 5.9% during the forecast period of 2023-2030. Increasing adoption of oilfield services for drilling services is proliferating the market’s growth.
In addition, technological advancements in the oil and gas industry led to the development of efficient and cost-effective drilling, exploration, and production techniques.
In light of these encouraging trends, let’s look at the fundamentals of the three best Energy - Services stocks, beginning with number 3.
Stock #3: ProPetro Holding Corp. (PUMP)
PUMP is an integrated oilfield services company that offers hydraulic fracturing, wireline cementing, and other complementary oilfield completion services to upstream oil and gas companies in the Permian Basin.
On June 5, PUMP announced the expansion and extension of its existing asset-based loan facility (the Amended ABL) to a new five-year term and an expansion of commitments from $150 million to $225 million. The Amended ABL will extend the maturity from 2027 to 2028. The company’s borrowings under the ABL Credit Facility were $60 million as of June 30, 2023.
“We believe that in today’s environment of limited capital, our ABL credit facility provides the lowest cost and most desirable capital source, along with a strong equity base, to support our long-term business strategy. We believe this facility, along with our working capital and cash flow from operations, will continue to provide strong liquidity to support ProPetro’s business into the future,” said David Schorlemer, PUMP’s Chief Financial Officer.
In May, PUMP’s Board of Directors approved a $100 million share repurchase program. This program aligns with the company’s strategy to create shareholder value. PUMP remains confident in its current and future financial and operational performance and believes its stock presents an investment opportunity between its equity value and solid financial performance.
In terms of forward non-GAAP P/E, PUMP is trading at 7.39x, 31.6% lower than the industry average of 7.39x. Also, its forward EV/Sales and Price/Sales multiples of 0.68 and 0.68 are 69.5% and 56.8% lower than the industry averages of 2.25 and 1.57, respectively.
For the second quarter that ended June 30, 2023, PUMP’s revenues increased 38.1% year-over-year to $435.25 million. Its operating income was $52.48 million, compared to an operating loss of $40.27 million in the prior year’s quarter. Also, net cash provided by operating activities was $114 million, and free cash flow for the quarter stood at approximately $6 million.
Furthermore, the company’s net income and net income per common share came in at $39.26 million and $0.34 versus a net loss and net loss per share of $32.86 million and $0.32, respectively, in the same period of 2022.
Analysts expect PUMP’s EPS for fiscal year (ending December 2023) to increase 185.6% year-over-year to $1.37. The company’s revenue for the current year is expected to grow 31.5% year-over-year to $1.68 billion.
Shares of PUMP have gained 40% over the past six months and 37.8% over the past year to close the last trading session at $10.13.
PUMP’s POWR Ratings reflect its promising prospects. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PUMP has an A grade for Momentum and a B for Growth and Value. It is ranked #22 out of 48 stocks in the Energy - Services industry.
Click here for the additional POWR Ratings for PUMP (Stability, Quality, and Sentiment).
Stock #2: Liberty Energy Inc. (LBRT)
LBRT offers hydraulic services and related technologies to onshore oil and natural gas exploration and production companies in North America. The company provides hydraulic fracturing and complementary services like wireline services, proppant delivery solutions, data analytics, related goods, and technologies.
In terms of forward non-GAAP P/E, LBRT is trading at 5.50x, 49.1% lower than the industry average of 10.81x. Likewise, the stock’s forward EV/Sales and Price/Sales multiples of 0.74 and 0.65 are 67.2% and 58.6% lower than the respective industry averages of 2.25 and 1.57.
On September 6, LBRT paid its stockholders a quarterly dividend of $0.05 per share of Class A common stock. Its four-year average dividend yield is 1.01%. Its annual dividend of $0.20 translates to a 1.13% yield on the current prices. Also, the company’s dividend payouts have grown at a CAGR of 32% over the past five years.
Moreover, backed by strong free cash flows, LBRT returned around $69 million to shareholders through share repurchases and a quarterly cash dividend during the second quarter of fiscal 2023.
For the second quarter that ended June 30, 2023, LBRT’s revenue increased 26.8% year-over-year to $1.19 billion. Its operating income grew 86.7% from the year-ago value to $206.48 million. Also, the company’s adjusted EBITDA amounted to $311.46 million, up 58.8% year-over-year.
Furthermore, net income attributable to LBRT stockholders was $152.67 million and $0.87 per share, representing increases of 45.2% and 58.2% over the prior year’s quarter, respectively.
Analysts expect LBRT’s revenue and EPS for the fiscal year (ending December 2023) to increase 12% and 23.4% year-over-year to $4.65 billion and $3.22, respectively. Also, the company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 41.4% and 53.3% over the past year to close the last trading session at $17.74.
LBRT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Value and Growth. Among the 48 stocks in the Energy - Services industry, it is ranked #14.
To access additional POWR Ratings of LBRT for Stability, Sentiment, and Quality, click here.
Stock #1: Matrix Service Company (MTRX)
MTRX offers engineering, fabrication, construction, and maintenance services to support critical energy infrastructure and industrial markets internationally. The company operates through three segments: Utility and Power Infrastructure; Process and Industrial Facilities; and Storage and Terminal Solutions.
MTRX’s forward EV/Sales of 0.34x is 78.8% lower than the industry average of 1.61x. And the stock’s forward EV/EBITDA multiple of 9.27 is 14.4% lower than the industry average of 10.83. Moreover, its forward Price/Sales of 0.34x is 74% lower than the 1.32x industry average.
During the fourth quarter that ended June 30, 2023, MTRX’s revenue increased 2.6% year-over-year to $205.85 million. Its gross profit was $14.70 million, compared to $858 thousand in the prior year’s quarter. The company’s backlog of $1.10 billion as of June 30, 2023, represents an increase of 85% year-over-year and the largest backlog since June 30, 2019.
In addition, MTRX’s project awards totaled $463.60 million during the fourth quarter, leading to a book-to-bill ratio of 2.3. As of June 30, 2023, the company’s cash and cash equivalents stood at $54.81 billion, compared to $52.37 billion as of June 30, 2022.
Street expects MTRX’s revenue for the fiscal year (ending June 2025) to increase 11.7% year-over-year to $946.52 million. Likewise, the consensus EPS estimate of $0.78 for the same period indicates an improvement of 181.8% year-over-year.
MTRX’s stock has gained 15.3% over the past six months and 29.5% year-to-date to close the last trading session at $10.69.
MTRX’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment. It also has a B grade for Growth and Momentum. MTRX is ranked #11 in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MTRX’s ratings for Value, Quality, and Stability here.
What To Do Next?
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LBRT shares rose $0.01 (+0.06%) in premarket trading Wednesday. Year-to-date, LBRT has gained 11.91%, versus a 12.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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