The Energy and Utilities sectors were the lone areas of the S&P 500 that were in the black during what was a tumultuous month of August. Stocks soared during the first half of last month as optimism about a soft landing, care of a hot U.S. July jobs report and tamer than expected CPI, helped bring down interest rates. The party did not last long. The SPX kissed its 200-day moving average and then turned south. Chair Powell provided a gut punch with his ‘painful’ message to investors at Jackson Hole, which helped bring about another burst of profit taking after a summer rally.
Oil prices wobbled throughout August. Ranging from the mid-$80s to the mid-$90s. Energy equities, though, did relatively well. One foreign small-cap energy name has outpaced even the best sector of the market recently.
Energy Finishes Higher In August
According to Bank of America Global Research, Scorpio Tankers (NYSE:STNG) provides seaborne transport of refined petroleum products worldwide, such as gasoline, heating oil, and fuel oil. Product tankers move refined products from global refineries to points near consuming markets. STNG operates the world’s largest, youngest, and most modern fleet of publicly traded product tankers consisting of 131 owned product tankers. STNG largely operates in the spot shipping markets.
The Monaco-based $2.4 billion market cap Oil, Gas & Consumable Fuels industry stock within the Energy sector has negative trailing 12-month earnings and pays a low 1.0% dividend yield, according to The Wall Street Journal.
On valuation, analysts at BofA see a massive positive profit turnaround this year for STNG. EPS growth is seen moderating in 2023 and 2024, though the Bloomberg consensus earnings outlook is more optimistic. Dividends are seen as increasing at a steady rate over the coming years. With earnings set to climb into positive territory, the forward earnings multiple is just 5.2, according to Seeking Alpha. BofA sees Scorpio generating strong free cash flow this year through 2024.
STNG: Earnings, Valuation, Free Cash Flow Forecasts
Looking ahead, Wall Street Horizon has a dividend pay date of Thursday, September 15. The company’s Q3 2022 earnings date is unconfirmed for Thursday, October 27, before the open. So there are few catalysts in the near future to spark volatility. Expect price trends to dominate near-term action.
STNG Corporate Event Calendar
The Technical Take
Let’s dive into what’s happening with price. On a relative basis versus the Vanguard FTSE All-World Ex-US ETF (VEU), Scorpio is busting to fresh 5-year highs. That’s a bullish trend against the broad foreign market.
Scorpio’s Relative Strength
On an absolute basis, I like what I see too. STNG has climbed above its December 2019 peak and is holding there for now. Bulls definitely want to see shares hold the $38 to $40 range. If that breaks, then a bearish false breakdown would trigger and could send shares down to the June low in the upper $20s – that was also the April 2020 peak.
Right now, though, it looks bullish, and I see a measured move price objective into the mid-$60s based on the bull flag that occurred this past June and July. If we take the prior advance from $11 to $38 and add that rally on top of the breakout point, which to me is the gap up to near $36, that yields a target of $63 (just to give an idea of the magnitude of the potential rally based on the chart pattern). Wall Street analysts see less upside, with an average price target of $46.17.
STNG: Climbing Above 2019 Highs After A Summer Bull Flag
The Bottom Line
Scorpio Tankers had strong earnings as was reported in late July. As demand to transport fuel grows, there’s a tailwind for this Energy sector stock. I see positive technicals too, but shares must hold the $38 to $40 area.