3 US Integrated Energy Stocks to Watch Despite Industry Challenges

Industry Overview - The Zacks Oil & Gas US Integrated industry includes companies involved in upstream and midstream energy businesses, focusing on oil and natural gas exploration and production [3] - Upstream operations are positively correlated with oil and gas prices, while midstream assets generate stable fee-based revenues [3] Current Trends - Softness in Crude Prices: The average price of West Texas Intermediate crude is projected to be $65.32 per barrel this year, down from $76.60 last year, with expectations of further decline to $51.42 per barrel by 2026 due to rising global oil inventory [4] - Slowdown in Production Growth: Weak oil prices are expected to hinder production growth, as companies prioritize returning capital to shareholders over increasing production [5] - Increasing Focus on Renewables: The shift towards cleaner fuels and renewable energy is likely to gradually reduce demand for fossil fuels, negatively impacting both upstream and downstream operations of integrated players [6] Industry Performance - The Zacks Oil & Gas US Integrated industry has a Zacks Industry Rank of 205, placing it in the bottom 16% of over 250 Zacks industries, indicating a bearish outlook [7][8] - Over the past year, the industry has declined by 4.6%, underperforming the broader Zacks Oil - Energy sector, which gained 10.5%, and the S&P 500, which surged by 16.6% [9] Valuation Metrics - The industry is currently trading at an EV/EBITDA ratio of 4.36X, lower than the S&P 500's 18.56X and the sector's 5.36X [13] - Historically, the industry has traded between 3.10X and 13.82X over the past five years, with a median of 4.65X [13] Company Insights - ConocoPhillips (COP): Expected to perform well in the soft crude pricing environment due to low breakeven costs and operations in prolific basins like Permian, Bakken, and Eagle Ford [15] - Occidental (OXY): Major producer of oil and natural gas in the U.S., focusing on efficiency improvements and redirecting capital towards higher-return projects [19] - National Fuel Gas (NFG): Positioned to navigate the uncertain environment with an integrated business model and a strong presence in the natural gas-rich Appalachian basin [22]