As the energy sector remains volatile in 2025, the time is ripe to identify quality undervalued oil and gas stocks. One such stock is Total Energy Services (TSX:TOT), valued at a market cap of $450 million.
Total Energy Services is a diversified energy services company operating in Canada, the U.S., and Australia. It has four primary business segments: contract drilling services, rentals and transportation services, compression and process services, and well servicing.
Total Energy provides essential services to oil and gas companies, which include specialized equipment rentals, compression solutions, and well-servicing operations.
The TSX stock has returned more than 100% to shareholders in the last five years after adjusting for dividend reinvestments. Let’s see why Total Energy Services is the smartest energy stock to buy with $500 right now.
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The bull case for investing in Total Energies stock
Total Energies delivered an impressive quarter in Q3 2024, demonstrating why it is a compelling investment in the energy services sector. Despite softer market conditions in the U.S., Total Energies increased sales by 4% year over year in Q3, while EBITDA (earnings before interest, tax, depreciation, and amortization) jumped 12% powered by the successful integration of Saxon Australia, improved compression and rental revenue, and a higher fabrication margin.
Total Energies is well diversified as it derives 49% of revenue from Canada, followed by the U.S. and Australia at 34% and 17%, respectively. Further, through its Australian operations, the company disclosed plans to double down on the lucrative liquified natural gas (LNG) market in Asia.
Total Energies recently deployed a new drilling rig and upgraded existing equipment under long-term contracts, with additional upgrades planned for early 2025. Additionally, its CPS (compression and process services) business continues to shine, driven by North America’s growing LPG export capacity and rising electricity demand. Total Energies also ended Q3 with a backlog of $189 million for fabrication sales.
Is the TSX energy stock undervalued?
Total Energies has increased its revenue from $198 million in 2016 to $892.4 million in 2023. Analysts tracking the TSX stock expect the top line to grow to $894 million in 2024 and $993 million in 2025. Moreover, adjusted earnings per share is forecast to expand from $1.01 per share in 2023 to $2.01 per share in 2025. So priced at less than 0.5 times forward sales and 5.9 times forward earnings, Total Energies stock trades at a cheap valuation.
Total Energies pays shareholders an annual dividend of $0.36 per share, translating to a forward yield of 3%. Given its outstanding share count, the company’s annual dividend expense is around $14 million. Comparatively, its free cash flow is forecast to increase to $85 million in 2025, indicating a payout ratio of just 17%. Since May 2022, Total Energies has increased its dividend payout by 50%, and it should continue to raise these payouts over the next two years.
Analysts remain bullish on the TSX dividend stock and expect it to gain more than 50% in the next 12 months.
The Foolish takeaway
Investors seeking exposure to the energy sector could consider gaining exposure to Total Energy Services. In 2025, Total Energy offers a compelling mix of geographic diversification, strong market positioning, and financial discipline while strategically focusing on high-growth LNG opportunities.
