Don’t Miss Out on These Energy Stocks

Austin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The country is still in midst of an energy boom. Oil and gas refining companies have seen solid growth this year. Companies are reporting earnings for the first quarter of this year. Here are three companies that you shouldn't miss. 

A nice short run benefit

Phillips 66 (NYSE: PSX) is a downstream oil and gas company. It has three separate divisions, including refining and marketing, midstream, and chemicals. Its midstream division gathers, transports, and markets natural gas and natural gas liquids. The company has over 15,000 miles of pipeline under control and 10,000 retail outlets.

The company posted 110% growth in earnings per share on May 1. EPS came in $0.30 above analyst expectations, reaching $2.19 a share. Investors should be very happy with this earnings growth. But, there is some less than great news in this earnings report. Total revenue fell 9%.

Its refining operations exhibited growth in total earnings. Earnings for this division were $909 million for the quarter -- an increase of over $450 million. The earnings growth is due to the cheaper supply of domestic crude oil. The company’s total production hasn’t increased. The costs have just decreased.

This is a nice sign for investors in the short run. But, the real issue is sustainability. What happens when the cost of crude oil rises? Profits will decline. This particular earnings report isn’t a strong indicator of future performance. As long as North American crude prices stay low, Phillips 66 will continue to see strong earnings. The company has a plan for 100% of its refining to be North American crude in the next few years.

Phillips 66 is also having an issue with one of its refineries in Sweeny, Texas. On May 11, the refinery lost power and had to be restarted. It will take a few days for the refinery to be running at 100% again. This will likely cause a slight dip in production for the second quarter.

Big gains to come in the refining space

Marathon Petroleum (NYSE: MPC) is a refining, transportation, and marketing company. The company met earnings expectations for its first quarter of this year. It posted $2.17 per share on April 30. Its EPS growth wasn’t as high as Phillips 66, but it did grow 27% from the same time last year.

Revenue grew as well. Total revenue for the quarter was $23.3 billion, up 14% from the same time last year. These are two very strong numbers. Earnings grew by a higher rate than revenue, so the company is becoming even more profitable.

This company has a lot of growth potential. This year alone, analysts expect a growth of 15%. Most of this growth will come from its recent acquisition of refining assets from BP. The company spent $2.4 billion on this purchase and an additional $2 billion upgrading another refinery in the hope of increasing production.

Marathon has beaten or met expectations for the last five quarters. It has already made moves to increase production. So, the next year and coming years should bring higher revenue and profits for investors.

A recent growth in production

Chesapeake Energy (NYSE: CHK) is an exploration and production company that also has midstream and marketing operations. It drills for both oil and natural gas in the United States.

It posted earnings for the first quarter on May 1. Earnings per share were $0.30, beating analyst expectations by 20% and increasing 67% from the same time last year. Total revenue grew 41%, as well. The biggest catalyst for this growth was the higher output from its production operations.

The company has been selling off non-core assets in an effort to focus on its most profitable oil and gas assets. This plan is an important one for investors. This shows investors that the company is making decisions to increase shareholder value. This year the company plans on selling off between $4 and $7 billion worth of assets. It already has $2 billion in the works.

This injection of capital can help spur investments into operating assets. Investors should watch for how it spends this capital. Daily oil production has already grown 6% this year. Look for more growth this year.

The bottom line

This first quarter has seen excellent profit growth for these three companies. The real question investors want answered is will this continue? The rest of this year should still bring strong growth as these three companies are focusing on their core operations. 

Energy investors would be hard-pressed to find another company trading at a deeper discount than Chesapeake Energy. Its share price depreciated after negative news surfaced concerning the company's management and spiraling debt picture. While the debt issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.

Austin Higgins has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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