The International Energy Agency's downward revision of this year’s growth estimate amid ongoing macroeconomic headwinds casts a gloomy short-term outlook for the energy sector. However, the long-term outlook remains promising due to substantial expansion and a sluggish energy transition.
Against this backdrop, we could look into energy stocks Shell plc (SHEL), CVR Energy, Inc. (CVI), and Adams Resources & Energy, Inc. (AE) that hold the potential to generate solid returns in the long term. Let’s understand this in detail.
Recently, the International Energy Agency (IEA) downgraded its 2023 growth estimate due to persistent macroeconomic challenges, evident in a deepening manufacturing slump. A notable cause is the stringent monetary policies implemented in various advanced and developing nations, leading to mounting pressure on global oil demand.
The leading energy watchdog forecasts global oil demand to rise by 2.2 million barrels per day in 2023, reaching an average of 102.1 million barrels per day. This represents a downward revision of 220,000 barrels per day compared to last month's report, which predicted a worldwide growth increase of 2.4 million barrels per day.
However, the energy sector's long-term outlook holds promising prospects. Oil and gas are anticipated to remain prominent energy sources for decades due to a slow-paced energy transition since the shift away from fossil fuels will demand substantial time, significant investment, and the development of more advanced technologies.
That said, OPEC's Secretary General, Haitham Al Ghai, foresees global oil demand surging to 110 million barrels per day by 2045, propelled by rapid urbanization.
ExxonMobil's senior advisor for public and government affairs, Erin McGrath, also asserts, "Liquids are projected to remain the world’s leading energy source in 2050.” The demand for liquids is anticipated to increase by roughly 15 million barrels per day by 2050, mostly driven by emerging markets in Asia, Africa, the Middle East, and Latin America.
In addition, the U.S. Energy Information Administration (EIA) foresees a significant surge in U.S. natural gas production, anticipating a 15% rise by 2050. Likewise, it expects an astounding 152% increase in Liquefied Natural Gas (LNG) exports during the same period, with natural gas production reaching an estimated 42.1 trillion cubic feet (Tcf).
In light of this, it could be wise to invest in fundamentally sound energy stocks SHEL, CVI, and AE for long-term gains.
Let’s discuss the featured stocks in detail.
Shell plc (SHEL)
Headquartered in London, United Kingdom, SHEL is an energy and petrochemical company. The company explores and extracts crude oil, natural gas, and natural gas liquids. It markets and transports oil and gas, produces gas-to-liquid fuels, and manages upstream and midstream infrastructure to deliver gas to the market.
On April 18, Shell U.K. Ltd, a SHEL subsidiary, completed the restart of Pierce field operations in the United Kingdom Central North Sea. The upgrade enabled gas production after years of oil-only output. Expectations of peak production of 30,000 barrels of oil equivalent per day, more than double the previous output, could bolster SHEL’s operations and revenue.
Moreover, on February 20, Shell Petroleum NV, a SHEL subsidiary, acquired Nature Energy Biogas A/S, Europe's largest Renewable Natural Gas (RNG) producer. The purchase includes operating plants, feedstock supply, infrastructure, and RNG technology expertise.
The acquisition should support SHEL's global ambitions to establish an integrated RNG value chain and expand low-carbon offerings to diverse customer sectors.
For the first quarter that ended March 2023, SHEL’s revenue increased 3.3% year-over-year to $86.96 billion. Its adjusted EBITDA grew 12.6% from the year-ago value to $21.43 billion. Moreover, the company’s adjusted earnings and adjusted EPS rose 5.7% and 15.8% year-over-year to $9.65 billion and $1.39, respectively.
SHEL’s revenue is expected to grow 1.8% year-over-year to $358.48 billion for the fiscal year ending December 2024. Moreover, the company surpassed the consensus revenue estimates in all of the trailing four quarters, which is impressive. Shares of SHEL have gained 27% over the past year to close the last trading session at $62.60.
SHEL’s robust 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.
SHEL has an A grade for Momentum and a B for Quality, Stability, and Sentiment. It is ranked #13 in the 89-stock Energy - Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SHEL’s ratings for Growth and Value here.
CVR Energy, Inc. (CVI)
CVI undertakes petroleum refining and nitrogen fertilizer manufacturing activities. The Petroleum segment refines and markets gasoline, diesel, and other refined products. The Nitrogen Fertilizer segment operates nitrogen fertilizer plants employing pet coke gasification to produce nitrogen fertilizer products.
On June 13, CVI concluded its exploration of a potential spin-off of its nitrogen fertilizer business. The board's decision not to pursue it presently considers market conditions and the best interests of CVI and its stockholders.
Moreover, the pre-treatment unit at Wynnewood remains on track for mechanical completion in the late fiscal 2023 third quarter, promising enhanced renewables capture rate and profitability for the company.
During the first quarter that ended March 31, 2023, CVI’s operating income rose 50% year-over-year to $330 million. Its adjusted EBITDA increased 115.5% from the year-ago value to $334 million.
In addition, net income attributable to CVI stockholders grew 107.4% from the prior year’s quarter to $195 million, while adjusted EPS came in at $1.44, reflecting a significant year-over-year improvement.
Over the past month, the stock has gained 24.3% to close the last trading session at $33.35.
CVI’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
CVI has an A grade for Quality. It is ranked #17 in the 89-stock Energy - Oil & Gas industry.
Click here to access additional CVI ratings (Growth, Value, Stability, Momentum, and Sentiment).
Adams Resources & Energy, Inc. (AE)
AE conducts marketing, transportation, and storage of crude oil and related products. The company operates through four segments: Crude Oil Marketing; Transportation; Pipeline and Storage; and Logistics and Repurposing. It purchases crude oil and coordinates sales and deliveries to refiners.
On May 4, AE announced that its subsidiary, Phoenix Oil, Inc., acquired approximately 10.6 acres of land in Dayton, Texas’ Gulf Inland Industrial Park. The acquisition aims to construct a new processing facility with rail spur and siding, product storage, and a truck rack. This infrastructure would cater to existing customers and create growth opportunities for AE.
For the first quarter that ended March 31, 2023, AE’s adjusted cash flow increased 16.6% year-over-year to $4.71 million. Its cash inflow from operating activities rose 303.7% from the year-ago value to $23.71 million. As of March 31, 2023, the company’s cash and cash equivalents stood at $42.14 million, compared to $20.53 million as of December 31, 2022.
The consensus revenue estimate of $3 billion for the fiscal year (ending December 2024) reflects a 4% year-over-year improvement. Likewise, the consensus EPS estimate of $1.52 for the same period indicates a 424.1% rise year-over-year. Shares of AE have gained 6.1% over the past year to close the last trading session at $33.40.
AE’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.
AE has a B grade for Value, Quality, and Sentiment. It is ranked #9 out of 89 stocks within the same industry.
Click here to access additional AE ratings for Stability, Growth, and Momentum.
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SHEL shares were trading at $62.83 per share on Friday afternoon, up $0.23 (+0.37%). Year-to-date, SHEL has gained 12.41%, versus a 19.40% 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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