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3 Oil Pipeline Stocks to Gain From the Prospering Industry – November 6, 2023


The very nature of the midstream business model suggests that oil and gas transportation pipeline and storage operations have low exposure to volatility in commodity prices. This is brightening up the outlook for the Zacks Oil and Gas – Production & Pipelines industry.

Pipeline players are better off than upstream and downstream firms since they generate stable fee-based revenues from their long-term contracts with shippers. Kinder Morgan, Inc. (KMI Free Report) , The Williams Companies Inc (WMB Free Report) and MPLX LP (MPLX Free Report) are among the frontrunners in the industry.

About the Industry

The Zacks Oil and Gas – Production & Pipelines industry comprises companies that own and operate midstream energy infrastructure assets. The properties consist of extensive pipeline networks that transport crude oil, liquids and natural gas. The midstream energy players are also involved in the processing and storing of natural gas. The companies have interests in natural gas distribution utilities, serving millions of retail customers across North America. Some companies are ramping up investments in renewable energy and power transmission businesses. The firms invested in wind farms, solar energy operations, geothermal projects and hydroelectric facilities. Thus, with a diversified portfolio of renewable energy projects, the firms have room to generate extra cash flows in addition to stable fee-based revenues from the transportation assets.

What’s Shaping the Future of Oil & Gas – Production and Pipelines Industry?

Pipeline Demand to Improve: Oil price is trading at more than $80 per barrel. Crude price, which is highly favorable, is helping explorers and producers to ramp up upstream activities, leading to higher production. This, in turn, is improving the demand for crude transportation pipelines of the midstream players.

Stable Fee-Based Revenues: Most pipeline and storage assets are being booked by shippers for the long term, making midstream businesses less vulnerable to volatility in commodity prices. Backed by long-term contracts, the companies belonging to the industry also have a minimal oil and gas volume risk. Owing to these factors, pipeline players will continue to generate stable fee-based revenues.

Impressive Project Backlog: Many pipeline companies in the industry have a huge backlog of growth projects worth billions of dollars. The projects will come online in a few years, securing additional cashflows for the pipeline players.

Attractive Dividend Yield: Oil and gas pipeline stocks are paying attractive dividend yields. Compared to the overall energy sector, companies belonging to the industry have been rewarding shareholders with significantly higher dividend yields over the past few years, providing reassurance that the midstream business is relatively more stable than upstream and downstream operations.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Oil and Gas – Production & Pipelines is a 12-stock group within the broader Zacks Oil – Energy sector. The industry currently carries a Zacks Industry Rank #92, which places it in the top 37% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates rosy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries results from a positive earnings outlook for the constituent stocks in aggregate. Before we present a few stocks that you may want to consider, let’s look at the industry’s recent stock-market performance and its valuation picture.

Industry Outperforms Sector, Lags S&P 500

The Zacks Oil and Gas – Production & Pipelines industry has outperformed the broader Zacks Oil – Energy sector but lagged the Zacks S&P 500 composite over the past year.

The industry has fallen 2.3% over this period compared with a decline of 5.5% of the broader sector and 15.3% improvement of the S&P 500.

One-Year Price Performance

Industry’s Current Valuation

Based on the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing oil and gas production & pipeline stocks, the industry is currently trading at 12.17X, lower than the S&P 500’s 12.51X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 3.41X.

Over the past five years, the industry has traded as high as 14.94X, as low as 8.88X and at a median of 12.83X.

Trailing 12-Month Enterprise…



Read More: 3 Oil Pipeline Stocks to Gain From the Prospering Industry – November 6, 2023

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