2-for1 Sale
With the election of a Liberal minority government, we may find ourselves worrying about the potential difficulties that this may bring. It will not be as easy to pass legislation, and the prime minister certainly has his work cut out for him.
For his part, Trudeau has come out clearly reiterating his goal of seeing the Trans Mountain pipeline expansion through, with a completion date of “as soon as possible.”
With this, will we finally start to see a shift in sentiment and a shift in news flow from the negative to the positive for the energy sector? With a growing realization that the pipeline expansion is in the interest of Canada and Canadians, do we finally have the catalyst that will start to take oversold energy stocks higher?
On this note, let’s take a look at an energy stock that is certainly oversold. While it’s not a very well-known energy stock, it is a high-quality one. Mullen Group (TSX:MTL) is a leading oilfield services and transportation/logistics company with a management team that has a solid track record of being good stewards of capital. The company has a diversified business, and this diversification has served to shelter Mullen somewhat from the stormy oil and gas market.
Better-than-expected results
Mullen Group reported third-quarter 2019 results yesterday — results that topped expectations and showed the resilience of the company’s operations. While revenue declined 4.2%, with the trucking segment declining 2% and the oilfield services segment declining 9.3%, operating margins showed a significant improvement and cash flow from operating activities rose nicely to $46.5 million.
EPS of $0.20 for the quarter was significantly better than expectations of $0.17, driving the stock more than 5% higher yesterday.
Mullen is a well-capitalized company with strong cash flows
Mullen remains well capitalized with $77.5 million in cash on its balance sheet and relatively conservative debt levels, and with a net-debt-to-total-capital ratio in the 40% range. This has and will continue to afford management the ability to acquire businesses that are distressed at extremely attractive valuations.
Mullen being able to purchase assets in this buyer’s market will enable the company to generate strong long-term returns and shareholder value, in my view.
According to Mullen’s CEO, acquisition opportunities remain significant, and Mullen remains well positioned through its financial strength and flexibility to continue to consolidate the market, increasing its size and market share, to the benefit of shareholders.
Pipeline activity
A quote from Mullen Group CEO Murray Mullen, says it all:
“There was a flurry of activity related to pipeline construction during the quarter, the majority related to the transportation of natural gas as companies position for the build out of LNG projects on Canada’s west coast, the gateway to Asian markets for Canada’s land locked natural gas. This is extremely positive and one of the few signs that there is some hope for Canada’s energy producers.”
Foolish bottom line
Mullen Group stock has not taken its shareholders on an easy ride. It has been difficult to live through dividend cuts, share price lows, and a general lack of anything positive.
Today, it looks like things are slowly changing. Mullen continues to crank out solid results, patiently waiting for the macro environment to improve. Early signs are pointing in the right direction, so I am staying on board with Mullen stock for its 7.5% dividend yield and its upside.
