The dynamic shifts in the global energy industry, driven by increased energy consumption, economic growth, and industrialization, along with numerous innovations in gas production and distribution, are expected to benefit the gas sector. Moreover, natural gas, due to its relatively lower emissions, is expected to play a crucial role in the transition to a cleaner future.
Amid this backdrop, it could be wise to consider buying fundamentally strong gas stocks: BP p.l.c. (BP), Equinor ASA (EQNR), and Antero Midstream Corporation (AM).
Before exploring the fundamentals of these stocks, let's examine what’s shaping the gas industry’s prospects.
Despite the ongoing shift to renewable energy sources, analysts expect oil and gas to enjoy steady demand due to the world’s expanding energy needs. The oil and gas market is projected to reach $7.63 trillion this year, growing at a 6.1% CAGR. It is projected to grow at a CAGR of 5.2% to reach $9.35 trillion by 2028.
Technological advancements, increasing oil and gas exploration activities, and growing energy consumption are shaping the gas industry's long-term outlook. Innovations in extraction techniques such as hydraulic fracturing, horizontal drilling, imaging technologies, and the Internet of Things are revolutionizing the natural gas extraction sector.
These technologies boost yields, lower drilling costs, improve safety, and help the environment. The global oil & gas automation market is expected to grow at a CAGR of 6.7% to reach $33.34 billion by 2030.
Natural gas is extensively used for power generation as a feedstock for various processes, such as for manufacturing chemicals, fertilizers, plastics, etc. It is also being increasingly used for heating and cooking purposes.
There is also strong demand for liquefied natural gas (LNG). With the advancements in storage, transportation, and liquefaction technologies, LNG is expected to see robust demand. The global LNG market is projected to grow at a CAGR of 7.6% to reach $213.78 billion by 2032.
According to the International Energy Agency (IEA), lower prices and higher demand are expected to drive strong growth in global natural gas consumption this year. In its gas market report, the agency said that natural gas demand will grow 2.5% in the first quarter.
IEA Director of Energy Markets and Security Keisuke Sadamori said, “We expect go see solid growth in global gas demand this year as prices have come down to relatively manageable levels. But the speed at which this new demand can be met will be critical, particularly as supplies are tight and substantial new LNG capacity will only come online after 2024.”
Furthermore, given its range of applications, natural gas is expected to play a crucial role in the global energy transition. Despite emitting greenhouse gases, natural gas burns cleaner than most fossil fuels. Thus, natural gas is expected to play the role of a transitional fuel towards a lower-carbon energy future. Global gas demand is projected to grow by approximately 10% to 15% until 2035.
Considering these conducive trends, let’s analyze the fundamental aspects of the featured gas stocks.
BP p.l.c. (BP)
Headquartered in London, United Kingdom, BP provides carbon products and services. The company operates through the Gas & Low Carbon Energy, Oil Production & Operations, and Customers & Products segments.
On February 14, 2024, BP announced the formation of a gas joint venture with ADNOC in Egypt. BP will hold a 51% stake, and ADNOC will hold 49%. The joint venture aims to develop gas assets in Egypt, deepening their long-standing partnership and aligning with their strategic growth plans.
In terms of the trailing-12-month Return on Common Equity, BP’s 22.11% is 22.9% higher than the 18% industry average. Its 13.30% trailing-12-month Return on Total Capital is 56.4% higher than the 8.50% industry average. Likewise, its 0.73x trailing-12-month asset turnover ratio is 38.3% higher than the industry average of 0.53x.
BP’s total revenues and other income for the fiscal fourth quarter, which ended on December 31, 2023, came in at $52.59 billion. Its profit for the period and EPS stood at $436 million and $2.15, respectively. In addition, the company’s cash and cash equivalents came in at $33.03 billion, compared to $29.19 billion as of December 31, 2022.
Street expects BP’s EPS and revenue for the quarter ending June 30, 2024, to increase 20.4% and 20.9% year-over-year to $1.07 and $58.68 billion, respectively. Over the past three months, the stock has gained 4.5% to close the last trading session at $36.42.
BP’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #15 out of 41 stocks in the A-rated Foreign Oil & Gas industry. It has a B grade for Momentum, Sentiment, and Quality. Click here to see the other ratings of BP for Growth, Value, and Stability.
Equinor ASA (EQNR)
Headquartered in Stavanger, Norway, EQNR is an energy company that explores, produces, transports, refines, and markets petroleum and other forms of energy internationally. It operates through Exploration & Production Norway, Exploration & Production International, Exploration & Production USA, Marketing, Midstream & Processing, Renewables, and Other segments.
On March 1, 2024, EQNR announced the procurement of 15 new helicopters for passenger traffic on the Norwegian continental shelf (NCS) through contracts with Bell and Leonardo. These helicopters, including ten Bell 525s and five AW189s, meet stringent safety requirements, providing increased flexibility and regularity in transportation.
On February 19, 2024, EQNR and Deepak Fertilisers signed a 15-year agreement for liquefied natural gas (LNG) supplies beginning in 2026. EQNR’s LNG portfolio, sourced mainly from the U.S. and its LNG Plant in Hammerfest, Norway, will supply Deepak with approximately 0.65 million tons annually for ammonia production, strengthening collaboration between both companies.
In terms of the trailing-12-month EBIT margin, EQNR’s 34.35% is 58.4% higher than the 21.69% industry average. Its 19.56% trailing-12-month levered FCF margin is 213.6% higher than the 6.24% industry average. Likewise, its 43.08% trailing-12-month EBITDA margin is 23.2% higher than the industry average of 34.96%.
For the fourth quarter, which ended on December 31, 2023, EQNR’s adjusted total revenues and other income stood at $28.48 billion. The company’s adjusted earnings came in at $8.68 billion. Also, its cash flows from operations, after taxes paid, amounted to $2.79 billion.
For the quarter ending March 31, 2024, EQNR’s revenue is expected to increase marginally year-over-year to $29.24 billion. Its EPS for fiscal 2025 is expected to increase 5.5% year-over-year to $3.28. Over the past nine months, EQNR’s stock has declined marginally to close the last trading session at $25.76.
EQNR’s positive outlook is reflected in its POWR Ratings. It has an A grade for Quality and a B for Momentum.
It is ranked #18 out of 41 stocks in Foreign Oil & Gas industry. To see EQNR’s Growth, Value, Stability, and Sentiment ratings, click here.
Antero Midstream Corporation (AM)
AM owns, operates, and develops midstream energy assets in the Appalachian Basin. It operates in two segments: Gathering and Processing and Water Handling. The company offers gathering, processing, water handling systems, pumping stations, storage, and blending facilities for energy production.
In terms of the trailing-12-month gross profit margin, AM’s 80.84% is 73.3% higher than the 46.65% industry average. Its 33.42% trailing-12-month net income margin is 151.2% higher than the 13.31% industry average. Likewise, its 27.26% trailing-12-month levered FCF margin is 337.1% higher than the industry average of 6.24%.
AM’s total revenue for the fourth quarter that ended December 31, 2023, increased 7.7% year-over-year to $260.17 million. Its operating income was $155.68 million, up 8% over the prior-year quarter. For the same quarter, the company’s net income and comprehensive income grew 21.3% year-over-year to $100.45 million. Also, its net income per share rose 23.5% from the year-ago value to $0.21.
Analysts expect AM’s EPS and revenue for the quarter ending March 31, 2024, to increase 22.3% and 3.7% year-over-year to $0.22 and $269.06 million, respectively. Over the past nine months, the stock has gained 26.2% to close the last trading session at $13.58.
AM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Momentum, Stability, and Quality. Within the A-rated MLPs - Oil & Gas industry, it is ranked #13 out of 24 stocks. In total, we rate AM on eight different levels. Beyond what we stated above, we also have given AM grades for Growth, Value, and Sentiment. Get all the AM ratings here.
What To Do Next?
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BP shares were trading at $36.51 per share on Thursday morning, up $0.09 (+0.25%). Year-to-date, BP has gained 4.39%, versus a 8.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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