By Gustav Andersson
The energy sector is facing new challenges as data centers and AI technology use more and more power. A recent BBC report says that in 2022, data centers used 460 terawatt hours of electricity. The International Energy Agency (IEA) thinks this could double to 1,000 terawatt hours by 2026. That’s as much electricity as all of Japan uses in a year according to this BBC article: https://www.bbc.com/news/articles/cj5ll89dy2mo
This big increase in energy use creates both problems and opportunities for energy companies. As we look at the top companies in this field, we need to think about how they might benefit from or adapt to these new trends.
AI systems that create content (like ChatGPT) use a lot more energy than older computer programs. In some places, data centers already use up to one-fifth of all electricity. This means the energy industry needs to change to keep up. To power these energy-hungry AI systems, we need significant investments in energy production and infrastructure
Let’s examine the top growing companies in the energy sector. We’ll explore how they might meet the energy demands of our digital world. This analysis can help us identify which companies are best positioned to supply the massive energy needs of AI and data centers. These companies could offer promising investment opportunities in this rapidly changing industry.
The TL;DR (Too Long; Didn’t Read):
- Euronav NV (EURN) – Oil & Gas Midstream – Total Score: 6.37
- Par Pacific Holdings, Inc. (PARR) – Oil & Gas Refining & Marketing – Total Score: 5.438
- Suncor Energy Inc. (SU) – Oil & Gas Integrated – Total Score: 4.551
- Petróleo Brasileiro S.A. – Petrobras (PBR.A) – Oil & Gas Integrated – Total Score: 4.413
- Precision Drilling Corporation (PDS) – Oil & Gas Drilling – Total Score: 4.233
Metholodgy:
To determine the top growth stocks, we looked at a dataset with various financial metrics, including revenue growth, EPS growth, ROE, ROA, PE ratio, forward PE, and analyst upside. We used the Z-score method to give each metric a score based on how it compared to the average of all the companies in the Energy sector
Think of the Z-score as a way to see how well a company is doing compared to its competitors. It tells us how far above or below the average a company’s metric is, in terms of standard deviations. A positive Z-score means the company is performing better than average, while a negative Z-score means it’s below average.
For example, if a company’s revenue growth has a Z-score of 1.5, it means that the company’s revenue growth is 1.5 standard deviations above the mean of all the companies in the dataset. This suggests that the company is outperforming its peers in terms of revenue growth.
We calculated the Z-score for each financial metric and every company in the dataset. Then, we gave each company a score based on its Z-score, with higher scores going to companies with better performance compared to their competitors. Finally, we added up the scores for each metric to get a total score for each company.
Before we dive into the full list:
The analysis is simplified and is an analysis, not an answer key, and will therefore, sooner or later, be incorrect on one, several, or all points. Details and the basis for the analysis are not presented, including the omission of details that lead to the conclusion.
Top Companies Overview:
- Euronav NV (EURN) – Total Score: 6.37 Highlights: Strong revenue growth (59.67%), impressive EPS growth (179.43%), and solid ROE (55.2%). Low PE ratio (2.73) suggests potential undervaluation.
- Par Pacific Holdings, Inc. (PARR) – Total Score: 5.438 Highlights: Solid revenue growth (11.37%), strong ROE (42.0%), and good ROA (12.9%). Low PE ratio (2.98) indicates possible undervaluation.
- Suncor Energy Inc. (SU) – Total Score: 4.551 Highlights: Despite negative revenue growth (-11.07%), shows strong EPS growth (1.52%) and decent ROE (18.5%). Attractive PE ratio (8.33).
- Petróleo Brasileiro S.A. – Petrobras (PBR.A) – Total Score: 4.413 Highlights: Strong ROE (33.6%) and good ROA (12.3%). Low PE ratio (3.9) suggests potential undervaluation.
- Precision Drilling Corporation (PDS) – Total Score: 4.233 Highlights: Excellent EPS growth (152.89%) and solid ROE (15.5%). Attractive PE ratio (5.96).
- Dorian LPG Ltd. (LPG) – Total Score: 4.174 Highlights: Strong revenue growth (43.87%) and impressive EPS growth (77.16%). Solid ROE (32.2%) and attractive PE ratio (5.61).
- Valaris Limited (VAL) – Total Score: 4.14 Highlights: Exceptional EPS growth (230.35%) and strong ROE (41.77%). Good ROA (19.39%) and attractive PE ratio (6.37).
- Riley Exploration Permian, Inc. (REPX) – Total Score: 4.139 Highlights: Strong revenue growth (26.83%) and solid ROE (24.1%). Attractive PE ratio (5.53).
- Centrus Energy Corp. (LEU) – Total Score: 4.107 Highlights: Remarkable ROE (2962.5%) and strong ROA (9.6%). Solid PE ratio (9.53).
- Petróleo Brasileiro S.A. – Petrobras (PBR) – Total Score: 4.012 Highlights: Strong ROE (33.6%) and good ROA (12.3%). Very attractive PE ratio (4.09).
Comments to the data:
Overall, these top 10 companies demonstrate strong financial performance across various metrics. Common themes include high ROE and ROA, impressive EPS growth, and attractive PE ratios, suggesting potential undervaluation in many cases. It’s worth noting that some companies, like Suncor Energy, show strength in certain areas despite challenges in others, highlighting the importance of considering multiple factors in assessing a company’s overall performance.
The blogs Analysis and the increasing demand for energy
according to IEA.org and thier ariticle: https://www.iea.org/reports/world-energy-investment-2024/united-states
While our top 10 companies show strong financial performance in the current energy landscape, it’s crucial to consider the broader trends shaping the sector. The energy sector is undergoing significant changes, driven by a combination of market forces, technological advancements, and policy initiatives. Let’s examine some key developments in the United States energy sector and their potential implications for investors:
Clean Energy Investment Surge The United States has seen a significant increase in clean energy investments, rising from $200 billion in 2020 to $280 billion in 2023. According to the text, for every $1.4 spent on clean energy in 2023, $1 was directed to fossil fuels. This translates to approximately 58.3% of energy investments going towards clean energy, while 41.7% is still allocated to fossil fuels.
Government Support Driving Change Substantial government support through the Bipartisan Infrastructure Investment and Jobs Act and the Inflation Reduction Act is accelerating investments in the energy sector. The Infrastructure Act allocated around $550 billion for clean energy and infrastructure, while the Inflation Reduction Act provides an estimated $370 billion for energy security and climate change initiatives.
Fossil Fuel Production Remains Significant Despite the growth in clean energy investments, the US remains the world’s largest oil and gas producer. The country’s spending on fossil fuel supply – more than $200 billion – accounts for around 19% of the global total. This aligns with the strong performance of companies in our top rankings, such as Suncor Energy Inc. (SU) and Petróleo Brasileiro S.A. – Petrobras (PBR.A). According to the IEA’s World Energy Outlook 2023, global oil demand is projected to grow by 6% between 2022 and 2030 in their Stated Policies Scenario, suggesting continued growth opportunities for these leading companies.
LNG Export Capacity Expansion The United States is set to account for about 40% of the new LNG export capacity coming to market in the second half of this decade. This could present opportunities for companies involved in natural gas production and transportation, potentially benefiting top-ranked companies like Euronav NV (EURN) and Par Pacific Holdings, Inc. (PARR) if they expand their operations in this area.
Future Projections The IEA’s Announced Pledges Scenario projects a reduction in upstream and midstream spending due to lower demand for fossil fuels. Simultaneously, investments in low-emissions power are expected to double, and energy efficiency investments nearly triple by 2030. However, it’s important to note that this is just one scenario, and actual outcomes may vary based on policy implementation and market forces.
Disclaimer
Readers should keep in mind that this analysis is based on historical financial data and should not be considered as investment advice. It is essential for readers to conduct their own thorough research and consult with financial professionals before making any investment decisions. The information provided in this article is for educational and informational purposes only and should not be relied upon as a sole basis for investment choices.