3 Energy Stocks Trading at Discount to Historical Valuations
In recent months, oil prices have remained consistently above $80 a barrel, with WTI crude — the U.S. benchmark — approaching $90. This trend, which began in June, can be primarily attributed to Saudi Arabia's strategic production cuts aimed at boosting demand.
With crude on an upswing, energy stocks have followed suit. As a matter of fact, over the past three months, Oil/Energy has been the best-performing sector. The space has witnessed a total return of 11.7% during this period against the S&P 500’s gain of around 4.4%.
While Wall Street continues to be largely bullish on energy, the sector is notoriously volatile, with sudden positive surprises and crashes. Against this backdrop, it will be fruitful to invest in top-ranked companies that are trading at deep discounts before the broader market catches on.
In this context, we highlight Murphy USA MUSA, CVR Energy CVI and Evolution Petroleum EPM — three stocks that that have gone below their historic averages. Each of them possesses high-quality business with a long history of successful execution. With the expectation of strong forward returns, we advise investors to add them to their portfolio.
Murphy USA
It is a leading independent retailer of motor fuel and convenience merchandise in the United States. The proximity of Murphy USA’s fuel stations to Walmart supercenters helps it to leverage the strong and consistent traffic that these stores attract. MUSA’s acquisition of QuickChek Corporation — a family-owned food and beverage chain — is expected to improve its offerings.
Murphy USA has not only experienced consistent earnings growth but has seen a remarkable acceleration in the past decade. Over the last 10 years, MUSA's earnings per share (EPS) have achieved a CAGR of 26.2%, while its stock has appreciated by an impressive 671% during this period.
Additionally, Murphy USA holds a Zacks Rank #2 (Buy), signifying a positive trend in earnings forecasts. In the past 60 days, this company based in El Dorado, AR, has witnessed a 5.3% increase in the Zacks Consensus Estimate for 2023. Furthermore, earnings estimates for the following year have seen an upgrade of 10.6%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
In terms of valuation, MUSA is currently trading at a forward earnings multiple of 14.63. While this is higher than the sector average of 9.29X, it falls below its 10-year median of 16.56X.
CVR Energy
Established in 2006, CVR Energy is a holding firm with a primary involvement in renewable energy, petroleum refining, and marketing. Additionally, it has interests in nitrogen fertilizer manufacturing through its stake in CVR Partners. The company places significant emphasis on the development of renewable biofuels, actively participating in the energy transition to reduce carbon emissions. Notably, CVR Energy has upheld a robust financial position, boasting a total liquidity of $937 million.
CVR Energy has demonstrated remarkable consistency in both its top and bottom-line growth over the past decade. During this period, its sales have increased from $9 billion to nearly $11 billion, and its EPS has grown from $3.97 to $6.05, representing a healthy CAGR of 4.8%.
Moreover, CVI has paid out dividends every year for the last 10 years, currently offering an appealing yield of 5.4%.
Carrying a Zacks Rank of 2, CVR Energy has observed notable improvements in earnings estimates in recent months. Forecasts for this year have seen a substantial upward revision of 44.2% over the past 60 days. Similarly, earnings expectations for 2024 have also experienced a positive adjustment, increasing by 14.7%.
CVI is trading at a one-year forward earnings multiple of 10.78, which is above the industry average, though it is under the 10-year median of 11.02X.
Evolution Petroleum
Founded in 2003, Evolution Petroleum is an independent upstream operator engaged in the exploration, development and production of onshore oil and natural gas properties in the United States. Headquartered in Houston, TX, EPM is focused on the non-operated working interests in high-quality, long-life reserves in several properties across the nation. Evolution Petroleum is known for its prioritization of maximizing shareholder returns through buybacks and dividends.
EPM has achieved remarkable growth, with both its sales and earnings increasing more than fivefold over the past decade. Annual sales have surged from a mere $21 million to surpass $100 million, while EPS has risen from 19 cents to $1.03 per share.
The company introduced a dividend in 2013 and has continued to pay it out consistently, even during the oil market downturn induced by the COVID-19 pandemic. Presently, Evolution Petroleum boasts a dividend yield of 5.4% and has increased it by an average of 5.4% annually over the past five years.
EPM has seen some positive adjustments in earnings estimates over the past two months, leading to its Zacks Rank #2. Projections for fiscal 2023 earnings have been revised upward by 4.5%, with those for 2024 showing a 2.9% increase.
Evolution Petroleum is currently trading at a one-year forward earnings multiple of 8.26, which is lower than the sector average of 9.29X and significantly below its 10-year median of 16.87X.
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CVR Energy Inc. (CVI) : Free Stock Analysis Report
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
Evolution Petroleum Corporation, Inc. (EPM) : Free Stock Analysis Report
