Further production cuts by OPEC+ and a decline in U.S. oil reserves should help the energy sector thrive in the near future. Therefore, I think it is an ideal time to invest in quality energy stock Parex Resources Inc. (PARXF), and I have discussed the reasons throughout this article.
OPEC+ and Saudi Arabian announced on April 2, 2023, a surprise decision to further cut oil output by approximately 1.16 million barrels per day. According to Reuters calculations, this brings the total volume of cuts by OPEC+ to 3.66 million barrels per day, equivalent to 3.7% of global demand.
Following the announcement, the head of investment firm Pickering Energy Partners said that the latest reductions could lift oil prices by $10 per barrel.
Moreover, the energy industry outperformed last year as a combination of a strong demand for energy and limited supplies, worsened by Russia’s invasion of Ukraine, led to elevated energy prices last year. This year the imbalance between supply and demand is expected to continue to be the primary factor driving growth in different segments of the energy industry.
Additionally, OPEC’s February report also indicates that global oil demand is anticipated to grow by 2.32 million barrels per day (bpd) this year, which is 100,000 bpd more than the previous month’s projection. Additionally, the report highlights that oil demand in China is predicted to increase by 590,000 bpd, up from the previous month’s estimate.
Headquartered in Calgary, Canada, PARXF engages in the exploration, development, production, and marketing of oil and natural gas in Colombia.
PARXF paid a regular dividend of CAD0.375 ($0.28) per share on March 31, 2023, representing a 50% increase from its last quarter’s regular dividend of CAD0.25 ($0.19) per share. The company pays a $1.11 per share dividend annually, which translates to a 5.66% yield on the current price level. Its four-year average dividend yield is 1.24%.
Moreover, the company repurchased around 1.6 million shares under its NCIB (normal course issuer bid) for a total consideration of about CAD36 million ($26.75 million). The company plans to use its NCIB to return free funds flow back to shareholders while continuing to increase its regular dividend.
Surging oil and gas prices have contributed to the stock’s rally. It has gained 13.5% over the past month and 35.6% over the past six months to close the last trading session at $19.39. The stock is currently trading above its 50-day and 200-day moving averages of $17.57 and $16.04, respectively, indicating an uptrend.
Here is what could influence PARXF’s performance in the upcoming months:
Robust Financials
PARXF’s adjusted fund flows provided by operations increased 42.8% year-over-year to $824.89 million in the fiscal year that ended December 31, 2022. Its net income rose 101.7% year-over-year to $611.37 million, while net income per share grew 119.8% from the prior year to $5.38.
Additionally, during the fiscal fourth quarter that ended December 31, 2022, its net income increased 160.3% year-over-year to $249.96 million, while net income per share increased 186.3% from the prior year to $2.29. Moreover, adjusted fund flows provided by operations rose 10.1% year-over-year to $185.19 million.
High Profitability
PARXF’s 59.56% trailing-12-month EBIT margin is 178% higher than the 21.43% industry average. The stock’s 79.23% trailing-12-month EBITDA margin is 132.1% higher than the 34.14% industry average. Its trailing-12-month net income margin of 46.64% is 242.2% higher than the industry average of 13.63%
Additionally, the stock’s 40.78% trailing-12-month levered FCF margin is 499% higher than the industry average of 6.81%. Its trailing-12-month ROCE, ROTC, and ROTA of 39.33%, 31.27%, and 126.42% are higher than the industry averages of 21.48%, 9.91%, and 7.40%, respectively. Its
Low Valuation
In terms of forward EV/EBIT, PARXF’s 3.65x is 51.7% lower than the 7.56x industry average. And its 1.62x forward EV/EBITDA is 67.4% lower than the 4.98x industry average.
Furthermore, the stock’s trailing-12-month Price/Book multiple of 1.24 is 23.2% lower than the 1.61x industry average. Its forward EV/Sales of 1.31x is 26.8% lower than the industry average of 1.79x.
Power Ratings Show Promise
PARXF has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
PARXF has an A grade for Quality, consistent with its high-profit margins. In addition, PARXF has a B grade for Value, which is in sync with its lower-than-industry valuation ratios.
PARXF is ranked #3 out of 42 stocks in the A-rated Foreign Oil & Gas industry.
Beyond what I have stated above, we have also given PARXF grades for Quality, Growth, and Stability. Get all the PARXF ratings here.
Bottom Line
PARXF reported impressive fiscal 2022 results and recorded a growth in annual average oil and natural gas production. Moreover, the company is well-positioned to benefit from the rising oil and gas prices.
The stock might be an ideal buy, given its solid financial performance, high profitability, and low valuation.
How Does Parex Resources Inc. (PARXF) Stack Up Against its Peers?
PARXF has an overall POWR B Rating. One could also check out these other stocks within the Foreign Oil & Gas industry with an A (Strong Buy) rating: GeoPark Ltd. (GPRK), Petroneft Resources PLC (PTR), and Santos Limited (SSLZY).
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PARXF shares were unchanged in premarket trading Thursday. Year-to-date, PARXF has gained 30.41%, versus a 6.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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