Investors: Momentum Returning to the Energy Field

Enerflex Ltd. (TSX:EFX) reported an earnings upswing, giving investors more evidence of energy market strength.

The Motley Fool

We have seen the carnage in the oil services sector in times of declining drilling activity and pricing pressure as a result of weakening oil and gas prices.

Pason Systems Inc.’s (TSX:PSI) shares are down 42% since highs seen in 2014, and while this is bad, it does not compare to the hit that other oil service names have taken in that same time period. Trican Well Service Ltd. (TSX:TCW) shares, for example, declined 77.7%, Precision Drilling Corporation (TSX:PD)(NYSE:PDS) declined 59%, and Calfrac Well Services Ltd. (TSX:CFW) shares fell a shocking 85%.

But Enerflex Ltd. (TSX:EFX) shares have actually performed quite well through the cycle; its shares have traded at pretty much the same levels as they did during the highs of 2014, far outperforming its peers.

Enerflex, which delivers a wide array of natural gas and oil infrastructure solutions, has a mix of product sales and recurring service revenue, and this has served the company well; in 2016, recurring revenue accounted for 42% of total revenue, which is increasing the company’s stability.

And with revenue across geographies worldwide, 41% from the U.S., 38% from Canada, and 21% from other parts of the world, the company has benefitted from this diversification.

On the financial side, the company’s strong balance sheet and cash flow generation has allowed it to increase its dividend by 41.7% over the past five years and gives it the flexibility to continue to pursue growth opportunities.

In the last five years, Enerflex has been free cash flow positive in all but one year (2015) — that’s a sharp contrast to many other of its oil services peers.

During the downturn, Enerflex also ramped up its cost-cutting and efficiency efforts; as of the first quarter of 2017, the company’s operating margin was 8.5% with the U.S. and the rest of the world posting an 11.7% and 10.8% margin, respectively. Canada was more challenging at -2.2%, but this should improve this year as business is strong so far and is exceeding expectations.

In the first quarter of 2017, Enerflex reported a 30.6% increase in revenue — an almost 70% increase in EBITDA and a more than doubling of its backlog.

Enerflex is expected to continue to benefit from increasing natural gas production, its increasing complexity (horizontal drilling has dramatically increased in numbers and in complexity), and the increasing need for energy infrastructure, not only in the very prolific Permian Basin, but also around the world.

Longer term, international gas demand continues to grow, and Enerflex is well positioned to be a part of any future possible LNG development around the world.

The stock is rallying off of these results and currently has a dividend yield of 1.8%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas owns shares of PRECISION DRILLING CORPORATION. Pason Systems is a recommendation of Stock Advisor Canada and Dividend Investor Canada.

More on Energy Stocks

energy industry
Energy Stocks

2 Energy Stocks to Buy With Oil Nearing $90/Barrel

Income-seeking investors can consider adding dividend-paying energy stocks such as Chevron to their portfolios right now.

Read more »

edit Sale sign, value, discount
Energy Stocks

Bargain Hunters: TRP Stock is the Best Dividend Deal Around!

TRP stock (TSX:TRP) offers a high dividend, but is still trading lower than 52-week highs. Now is the best time…

Read more »

oil and natural gas
Energy Stocks

Enbridge Stock: Is the Energy Infrastructure Giant Undervalued?

With Enbridge trading nearly 15% off its 52-week high, is the energy infrastructure stock worth buying today?

Read more »

Solar panels and windmills
Energy Stocks

So You Own Algonquin Stock: Is It Still a Good Investment?

Algonquin stock (TSX:AQN) was once a top investment for Canadians seeking a high dividend. But after a cut last year,…

Read more »

oil tank at night
Energy Stocks

Is Suncor a Buy, Sell, or Hold?

Suncor Energy stock is off to a strong start in 2024. Is the TSX energy stock a good buy right…

Read more »

Burning gas and electric cooker rings
Energy Stocks

2 Energy Stocks to Buy Hand Over Fist in April

These two top energy stocks are some of the best to buy due to their reliability, reasonable growth potential, and…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Whitecap Resources a Buy, Sell, or Hold?

Let's dive into whether Whitecap Resources (TSX:WCP) represents a buy, sell, or hold in the market at current levels.

Read more »

oil and natural gas
Energy Stocks

Dividend Investors: Top Canadian Energy Stocks for April 2024

These Canadian energy stocks are known for rewarding shareholders with higher dividend payments.

Read more »