The crude oil prices rose to over $120 per barrel after Saudi Aramco's fuel distribution facilities were attacked by Iranian-aligned Houthi rebels in Yemen. However, OPEC and allied oil producers decided to increase crude oil production on Thursday, and the Biden administration is planning the largest ever draw from its emergency oil reserve. These moves drove a sharp decline in the oil prices, with Brent crude futures trading 5% lower at $107.69 per barrel Thursday afternoon, while U.S. West Texas Intermediate futures fell 5.4% to $101.96.
Nevertheless, analysts at UniCredit bank said the impact of such moves on prices "is usually short-lived" because reserves are finite, and the production shortfall is open-ended. Once reserves fall below a certain level, the market might anticipate insufficient supply to offset a continuing shortfall, and prices could go back up.
Given this backdrop, we think it could be wise to invest in fundamentally sound energy stocks Marathon Petroleum Corporation (MPC) and Valero Energy Corporation (VLO).
Marathon Petroleum Corporation (MPC)
MPC in Finlay, Ohio, is primarily an integrated downstream energy company. It has two operational segments: Refining & Marketing, which refines crude oil and other feedstocks at its refineries; and Midstream, which transports, stores, distributes, and markets crude oil and refined products.
In the fourth quarter, ended Dec. 31, 2021, MPC's sales and other operating revenue increased 96.6% year-over-year to $35.34 billion. Its income from continuing operations grew 355.9% from its year-ago value to $1.78 billion, while the net income increased 171.6% from its prior-year quarter to $774.00 million. The company's EPS has risen 188.6% year-over-year to $1.27.
Analysts expect MPC's revenue to increase 41.3% year-over-year to $32.34 billion in the first quarter, ending March 31, 2022. The $1.77 consensus EPS estimate for the second quarter, ending June 30, 2022, represents a 164.1% improvement year-over-year. Furthermore, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 59.8% over the past year and 41.5% over the past nine months.
MPC's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock also has a B grade for Growth, Sentiment, and Quality. Within the A-rated Energy - Oil & Gas Industry, it is ranked #12 of 90 stocks.
To see additional POWR Ratings for Stability, Value, and Momentum for MPC, click here.
Valero Energy Corporation (VLO)
VLO in San Antonio, Tex., manufactures, markets, and sells transportation fuels and petrochemical products worldwide. The company operates through three segments: Refining, Renewable Diesel, and Ethanol. It produces conventional, premium, and reformulated gasoline (gasoline that meets the California Air Resources Board (CARB) standard) and other refined petroleum products, and sells lube oils and natural gas liquids.
For its fourth quarter, ended Dec. 31, 2021, VLO's revenue increased 116.2% year-over-year to $35.90 billion. Its operating income amounted to $1.59 billion, compared to a $470.00 million operating loss in the prior-year quarter, while its net income amounted to $1.01 billion, versus a $359.00 million net loss in the previous-year quarter. The company's EPS came in at $2.46 compared to an $0.88 loss per share in the year-ago quarter.
The consensus EPS estimate for the second quarter, ending June 30, 2022, represents a 413.6% improvement year-over-year to $2.47. Analysts expect revenue to increase 61.5% year-over-year to $33.60 billion for the first quarter, ending March 31, 2022. In addition, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has soared 41.8% in price over the past year and 43.9% over the past six months.
VLO's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Growth, Sentiment, and Quality. Within the Gas industry, it is ranked #18.
In total, we rate VLO on eight distinct levels. Beyond what we have stated above, we have also given VLO grades for Momentum, Stability, and Value. Get all the VLO ratings here.
MPC shares were trading at $84.35 per share on Friday afternoon, down $1.15 (-1.35%). Year-to-date, MPC has gained 32.79%, versus a -4.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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