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

analyze data
Energy Stocks

Buy 8,850 Shares of This Top Dividend Stock for $2,000/Month in Passive Income

Let's do the math on what it would take to generate $2,000 a month in passive income from Enbridge (TSX:ENB)…

Read more »

oil and gas pipeline
Energy Stocks

Is TC Energy Stock a Good Buy?

TC Energy stock has a lot going for it, but there are also a few red flags to consider before…

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Is Canadian Natural Resources Stock a Good Buy?

CNRL is an energy giant with a market capitalization near $100 billion.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Baytex Energy Stock a Good Buy?

Baytex Energy is a TSX stock that has massively underperformed the broader markets in the past decade, but it trades…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Suncor a Buy for its 4.2% Dividend?

Suncor Energy (TSX:SU) has a 4.2% yield. Is it a buy?

Read more »

engineer at wind farm
Energy Stocks

Energy Stocks to Buy Now: Top Picks for Canadian Investors

These companies have a solid business model and growing cash flows to support higher dividend payments and share prices.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Is Enbridge Stock a Good Buy?

Enbridge provides a 6.5% dividend yield right now.

Read more »

Oil industry worker works in oilfield
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor stock looks undervalued as the company continues to increases cash flows, earnings, and shareholder returns.

Read more »