PHX Energy Services Corp. (TSX:PHX) stock is currently fired up. The TSX dividend stock is creating massive returns for early investors at a faster pace right now. Shares rallied by 27% over the past week. The $437 million oil and gas drilling services company raised its quarterly dividend by 33% last week as it released a stellar set of third-quarter earnings results that extended its recent record-setting financial performance. The business is booming despite a general drilling services industry softness.
Why PHX Energy Services stock is skyrocketing
PHX Energy Services delivered its third consecutive set of record-breaking quarterly results on November 7. Following similar performances since the start of this year, the company generated all-time-high quarterly revenue of $169.4 million for the third quarter of 2023. Up 19% year over year, PHX’s revenue performance defied a lower U.S. rig count and lifted quarterly earnings. Earnings margins expanded to the highest levels ever recorded in the company’s history.
Confident of sustained strong financial performances in the future, the company’s management raised PHX’s quarterly dividend payable in January 2024 by a staggering 33% to $0.20 per share. The latest dividend raise – the fifth since 2020 – increases the annualized dividend yield on PHX stock from 6.7% to 8.9% for new investors.
The energy stock is a rewarding cyclical play on a strong energy market. PHX Energy is enjoying one of its best financial periods this decade. The good times could spill into 2024 and beyond if oil prices continue to sustain producer demand for drilling and oil-well services – providing more potential upside to the energy services stock.
Further, there are some emerging traces of resiliency in PHX Energy’s business model right now. Despite a slow decline in the U.S. oil rig count, the company retains work with 12 of the top 15 U.S. oil and gas operators. There’s strong demand for its premium technology products, especially its rotary steerable (RSS) capabilities and Atlas rental and sales programs. Management has since increased its capital expenditures budget for 2023 (this month) by 30% from $61.5 million to $80 million to support capacity growth in the identified growth areas.
Uniquely positioned
The company claims it is uniquely positioned as the only drilling technology services provider in North America offering two RSS options – the iCruise system by Halliburton, and Schlumberger’s PowerDrive Orbit RSS. Add PHX Energy’s internally developed supplementary technologies that complement the in-demand drilling technologies into the mix, and the company’s competitive position looks favourable for another great financial year in 2024.
Is PHX Energy Services stock a buy?
Dividend stock investors who buy PHX Energy Services stock at current levels could earn a juicy 8.9% dividend yield for 2024. The company has raised its dividend five times since it reinstated payouts in 2020. If the energy sector doesn’t experience an oil winter in the near term, Rule of 72 predicts that consistently reinvesting PHX’s new dividend could help double your money in just eight years. The company pays around 35% of its earnings in dividends. The payout is reasonably well covered.
What’s more, PHX Energy’s commitment to share repurchases may further reduce its outstanding shares and enhance per-share financial metrics – increasing the intrinsic value of each common stock unit. The company has repurchased 21% of its outstanding shares since 2017 and continues to actively buy back its stock in a renewed repurchase program that runs through August 2024.
Despite the recent run, PHX Energy Services stock looks fairly valued trading at a forward price-to-earnings (P/E) multiple of 5.5, which compares well to close competitor Ensign Energy’s forward P/E of 5.4.
Bay Street analysts rate PHX stock a Strong Buy with an average price target of $11.33 per share, which implies another 26% potential upside over the next 12 months. Risks to watch include geopolitical tensions, including armed conflicts in Europe and a softer Chinese economy as these may inflict pain on global economic activity and drag oil prices lower.
