Uncertainty around the trajectory for interest rates has made the overall energy market extremely volatile. This is hurting the prospects of upstream and downstream businesses, thereby making the outlook for the Zacks Oil and Gas Integrated International industry gloomy.<\/p>\n
Among the companies in the industry that will probably survive the business challenges are Exxon Mobil Corporation<\/strong>\u00a0XOM, Chevron Corporation<\/strong>\u00a0CVX, Shell plc <\/strong>SHEL and YPF Sociedad An\u00f3nima<\/strong> YPF.<\/p>\n About the Industry<\/b><\/p>\n The Zacks Oil and Gas Integrated International industry covers companies primarily involved in upstream, midstream and downstream operations. These companies have upstream businesses in the United States (including prolific shale plays and the deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. Midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. In downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies\u2019 downstream activities involve chemical businesses that manufacture raw materials for making plastics. The integrated players are now gradually focusing on renewables, leading to the energy transition. The firms aim to lower emissions from operations and cut the carbon intensity of the products sold.<\/p>\n 3 Trends Shaping the Future of the Industry<\/b><\/p>\n Recessionary Concerns:<\/em><\/strong>\u00a0Analysts express worry that an extended period of tight monetary policy, lasting longer than initially anticipated, could potentially steer the economy into a recession. Overall, there has been uncertainty over the interest rate trajectory, spurring market volatility. These are making the upstream business environment extremely choppy.<\/p>\n Refining Business Under Pressure:\u00a0<\/em><\/strong>Worries about recessions have also raised concerns about weak fuel demand. Since cashflows from refining activities are dependent on demand for end petroleum products, the integrated companies\u2019 refining businesses may get hurt. Also, the high oil price is increasing input costs of refiners, squeezing profit.<\/p>\n Declining Operating Cashflows:\u00a0<\/em><\/strong>Over the past two reported quarters, the composite stocks belonging to the industry have witnessed declining net operating cashflows. The trend can continue since the overall business scenario of the international integrated players is highly uncertain.<\/p>\n Zacks Industry Rank Indicates Bearish Outlook<\/b><\/p>\n The Zacks Oil and Gas Integrated International industry is part of the broader Zacks\u00a0Oil – Energy\u00a0sector. It carries a Zacks Industry Rank #198, which places it in the bottom 19% of more than 250 Zacks industries.<\/p>\n The group\u2019s\u00a0Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.<\/p>\n Before we present a few stocks that you may want to consider, let\u2019s take a look at the industry\u2019s recent stock market performance and valuation picture.<\/p>\n Industry Outperforms Sector and S&P 500<\/b><\/p>\n The Zacks Oil and Gas Integrated International industry has outperformed the broader Zacks Oil – Energy sector and the Zacks S&P 500 composite over the past year.<\/p>\n The industry has rallied 31.3% over this period compared to the S&P 500\u2019s gain of 18.4% and the broader sector\u2019s jump of 21%.<\/p>\n Industry’s Current Valuation<\/b><\/p>\n Since oil and gas companies are debt-laden, it makes sense to value them based on the Enterprise Value\/Earnings before Interest Tax Depreciation and Amortization (EV\/EBITDA) ratio. This is because the valuation metric takes not just equity into account but also the level of debt.<\/p>\n On the basis of the trailing 12-month EV\/EBITDA, the industry is currently trading at 3.18X, lower than the S&P 500\u2019s 12.89X. It is also below the sector\u2019s trailing-12-month EV\/EBITDA of 3.46X.<\/p>\n Over the past five years, the industry has traded as high as 6.40X, as low as 2.57X, with a median of 4.61X.<\/p>\n 4 Integrated International Stocks to Keep a Close Eye on<\/b><\/p>\n YPF Sociedad: <\/strong>Being a leading energy player, YPF Sociedad is Argentina\u2019s largest company, considering revenues. Compared to the past few years, YPF, carrying a Zacks Rank #3 (Hold), reflects healthier adjusted EBITDA and margins.<\/p>\n Shell:<\/strong> In liquified natural gas, Shell is among the leading global players. Also, growing renewable business at a rapid pace is among the core strategies of\u00a0Shell. In the renewable energy front, Shell has roughly 50 gigawatts of renewable generation capacity, considering projects that are either in operation, under construction or in the pipeline. Thus, for renewables and energy solutions, SHEL, with a Zacks Rank of 1, is investing actively in solar energy, wind energy, electric vehicle charging and others.<\/p>\n Chevron:\u00a0<\/strong>It is also a leading integrated energy player with operations worldwide. Apart from a strong balance sheet, it has a solid capital discipline that will help it tide over volatile commodity prices. The energy major\u2019s conservative capital spending will probably help it generate considerable cash flow, even in an unstable business scenario. The primary growth driver for the #3 Ranked stock, at least in the near term, is its low-cost Permian projects.<\/p>\n ExxonMobil:\u00a0<\/strong>It is among the largest integrated energy companies in the world. The energy major can rely on its strong balance sheet to withstand any business turmoil. ExxonMobil, with a Zacks Rank of 3, is banking on low-cost project pipelines centered around the Permian \u2014 the most prolific basin in the United States \u2014 and offshore Guyana resources. Chevron Corporation (CVX): Free Stock Analysis Report<\/p>\n YPF Sociedad Anonima (YPF): Free Stock Analysis Report<\/p>\n Shell PLC Unsponsored ADR (SHEL): Free Stock Analysis Report<\/p>\n To read this article on Zacks.com click here.<\/p>\n Zacks Investment Research<\/p>\n This article originally appeared on Zacks<\/i><\/p>\n Sponsored: Find a Qualified Financial Advisor<\/b><\/p>\n Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.<\/p>\n
\nExxon Mobil Corporation (XOM): Free Stock Analysis Report<\/p>\n