AETUF - Mid-Cap Energy Producers Ranked By Quality
2023-04-11 08:55:03 ET
Summary
- Thirty-eight mid-cap energy producers were evaluated using a quality matrix with factors including Price/Sales, Net Income Margin, Free Cash Flow Margin, and Total Debt/Market Cap.
- The quality matrix is a broad effort to identify those mid-cap producers that are likely to be amongst the best and poorest investments in the group.
- Investors are once again cautioned to consider every investment carefully and on its own merits.
Background
This review is a follow-up to " The Largest Global Energy Companies Ranked By Quality ", " Micro-Cap Energy Stocks Ranked By Quality ", and " Small-Cap Energy Producers Ranked By Quality ", wherein the world's largest, micro-cap, and small-cap energy companies were evaluated using a quality matrix. I intend to complete the series by evaluating large-cap energy producers in a future analysis.
I am now retired, with the exception of managing my own portfolio and a family portfolio. My professional background is engineering and management. In both roles, my general approach was to begin with a body of data and reduce that data to some actionable conclusion. This analysis and several others I have published here on Seeking Alpha follow that same approach. In this case, I will evaluate 38 mid-cap energy producers relative to the group using a quality matrix.
Relative Quality Evaluation
Thirty-eight mid-cap energy producers were evaluated using a quality matrix with factors including Price/Sales, Net Income Margin, Free Cash Flow Margin, and Net Debt/Market Cap. The values for each company's factors were normalized by means of statistical percent ranking with relation to the group. The quality matrix was calculated as the sum of the percent ranks of the factors.
Quality Matrix Chart
Author, SA Data
The above chart is sorted in descending order of the best quality (highest matrix score) to the poorest quality (lowest matrix score).
Quality Matrix Plot
Author, SA Data
The quality matrix is presented graphically in the stacked bar chart above with cumulative inputs for each factor. Based on this analysis, the best investments in the group are likely to include:
- Chord Energy Corporation ( CHRD )
- Parex Resources Inc. ( PARXF )
- PDC Energy, Inc. ( PDCE )
- Black Stone Minerals, L.P. ( BSM )
- Vermilion Energy Inc. ( VET )
Based on this analysis, the least favorable mid-cap energy producers in the group are likely to include:
- Energean plc ( EERGF )
- CNX Resources Corporation ( CNX )
- Topaz Energy Corp. ( TPZEF )
- YPF Sociedad Anónima ( YPF )
- Kosmos Energy Ltd. ( KOS )
Quality Matrix Limitations
Investors should consider the quality matrix a screen only. The matrix and its factors, normalization method, and weights could all be adjusted and yield different results. Further, the matrix is based on the most readily available and common metrics. These metrics can change rapidly with share price or as new company reports are released. It does not include company-specific data available in quarterly reports and presentations. The quality of a producer's reserves, planned capex, expected production, and hedging are amongst the factors not addressed here. Every investment decision regarding an individual equity should be based on comprehensive analysis of that equity.
Conclusions and Recommendations
The quality matrix is a blunt instrument with perhaps little finesse or discernment. Nonetheless, a higher quality ranking indicates a small-cap producer with a favorable combination of valuation, profitability, FCF and net debt relative to its peers. Those highly ranked producers are likely to be amongst the best investments in the group. Conversely, the lower-ranked producers are likely to be amongst the poorest investments in the group. However, the real work is left to the individual investor.
Investors are once again cautioned to consider every investment carefully and on its own merits. A great place to start is the work of my fellow Seeking Alpha contributors. It just happens that my top pick CHRD was covered less than a week ago by Geoffrey Seiler in a particularly insightful and well-considered analysis entitled " Chord Is Too Cheap To Ignore ".
Information is a source of learning. But unless it is organized, processed, and available to the right people in a format for decision making, it is a burden, not a benefit.
- William Pollard (Physicist and Theologian)
For further details see:
Mid-Cap Energy Producers Ranked By Quality