Energy businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Their momentum is also rising as lower interest rates and AI energy needs have incentivized higher capital spending, and as a result, the industry has posted a six-month gain of 39.6%. This was a good place to be as the S&P 500 was down 5.5%.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. Taking that into account, here is one energy stock boasting a durable advantage and two that may face trouble.
Two Energy Stocks to Sell:
Antero Resources (AR)
Market Cap: $13.09 billion
Holding roughly 521,000 net acres across West Virginia, Ohio, and Pennsylvania, Antero Resources (NYSE: AR) drills and produces natural gas, natural gas liquids, and oil from underground rock formations in the Appalachian Basin.
Why Are We Cautious About AR?
- 5.4% annual revenue growth over the last five years was slower than its energy upstream and integrated energy peers
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 1.9 percentage points
Antero Resources is trading at $42.63 per share, or 10.3x forward P/E. Check out our free in-depth research report to learn more about why AR doesn’t pass our bar.
Centrus Energy (LEU)
Market Cap: $3.41 billion
Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE: LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.
Why Do We Think LEU Will Underperform?
- Revenue base of $448.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Costly operations and weak unit economics result in an inferior gross margin of 31.8% that must be offset through higher production volumes
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 33.2 percentage points
Centrus Energy’s stock price of $174.17 implies a valuation ratio of 47.1x forward P/E. To fully understand why you should be careful with LEU, check out our full research report (it’s free).
One Energy Stock to Watch:
Helmerich & Payne (HP)
Market Cap: $3.60 billion
Operating the largest fleet of super-spec rigs in North America with technology that can drill horizontal wells over two miles long, Helmerich & Payne (NYSE: HP) provides drilling rigs and crews to oil and gas companies that need wells drilled to extract hydrocarbons from underground.
Why Do We Watch HP?
- Annual revenue growth of 25.4% over the past five years was outstanding, reflecting market share gains this cycle
- Economies of scale give it more fixed cost leverage than its smaller competitors
- EBITDA margin expanded by 14.5 percentage points over the last five years as it scaled and became more efficient
At $35.53 per share, Helmerich & Payne trades at 66.7x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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