We are upbeat about Unit Corporation’s UNT prospects and believe that it is a promising pick at the moment.
The company currently sports a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities for investors.
Let’s delve deeper to analyze the factors that make this energy player an attractive investment option.
Diversified Energy Business
Through its affiliates, Unit is involved in exploration, development and production of oil and natural gas acres — including Wilcox play in the Gulf Coast region and the Mid-Continent region’s Granite Wash play, Hoxbar play and STACK play. Through 2018, Unit has drilled roughly 34 net wells, significantly higher than last year’s 26 wells and 10 wells in 2016.
Higher drilling activity will likely help the energy firm achieve its daily production target of 47 to 48 thousand barrels of oil equivalent. Since majority of its production comprises natural gas, the company is well placed to capitalize on the clean energy demand. Investors should know that through 2017, natural gas contributed to roughly 32% of the nation’s electricity generation, steering past coal, per U.S. Energy Information Administration.
The company also has a presence in contract drilling businesses as its subsidiary, Unit Drilling Company, is considered the leading onshore drilling player with a fleet size of 96 rigs. The rigs operate in the Mid-Continent region and prolific plays like Bakken, Niobrara and Permian.
Moreover, through its 50% ownership in Superior Pipeline Company L.L.C, Unit is engaged in transporting, gathering and processing of natural gas. Hence, the diversified presence in energy businesses will lower the company’s exposure to commodity price fluctuations.
More Upside Potential
On the basis of the trailing 12-month enterprise value-to-earnings before interest, tax, depreciation and amortization (EV/EBITDA) ratio, which is a commonly used multiple for valuing oil and gas stocks, we see that the stock is currently trading at 4.58X.
Over the past year, the stock has traded as high as 10.77X, as low as 4.58X and at the median of 7.84X, as the chart below shows.
The company’s current multiple is lower than the median level and significantly below the one-year high mark, reflecting substantial upside potential.
Other Stocks to Consider
Other prospective players in the energy space are Enterprise Products Partners LP EPD, Shell Midstream Partners, L.P. SHLX and Gran Tierra Energy Inc. GTE. While Enterprise Products carries a Zacks Rank #2, Shell Midstream and Gran Tierra sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Enterprise Products will likely post earnings growth of 36.4% and 6.5% through 2018 and 2019, respectively.
Shell Midstream surpassed the Zacks Consensus Estimate in each of the last four quarters, the average positive earnings surprise being 10.9%.
Gran Tierra will likely see earnings growth of 337.5% in 2018.
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Shell Midstream Partners, L.P. (SHLX) : Free Stock Analysis Report
Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
Gran Tierra Energy Inc. (GTE) : Free Stock Analysis Report
Unit Corporation (UNT) : Free Stock Analysis Report
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