This year has seen the Iran-War, which culminated in the closure of the Strait of Hormuz, responsible for the passage of significant oil volumes that are consumed across the globe. The resulting supply concerns drove crude prices upward and renewed momentum across the broader energy space.
Against this backdrop, finding attractively priced opportunities in the energy space has become increasingly difficult following the sector’s strong gains this year. In this context, let’s take a closer look at two large-cap energy players — Kinder Morgan KMI and Cenovus Energy Inc. CVE — to see whether they still offer compelling value after the sector’s strong rally.
Energy Sector Rallied Following Oil Price’s Massive Jump
The price of West Texas Intermediate crude has jumped to more than $100 per barrel this year from a little above $70 per barrel a year ago. The Iran war had long been driving up the oil price. But, with the recent development that the United States and Iran have agreed on a framework deal to end the war and eventually reopen the Strait of Hormuz, the price of the commodity has dropped and is hovering around $80 per barrel.
Investors should note that the big rally in oil prices has driven the strong gain of the energy sector. Year to date, the sector as a whole surged 25.2%, marking a robust gain. Using our proprietary stock screener, we have zeroed in on two large-cap undervalued energy stocks.
2 Energy Stocks With Cheap Valuations: KMI, CVE
Kinder Morgan operates an extensive network of pipelines spanning 78,000 miles, transporting natural gas, gasoline, crude oil and carbon dioxide. In addition, the company owns 136 terminals that store a variety of products, including renewable fuels, petroleum products, chemicals and vegetable oils.
As a leading large-cap midstream service provider, Kinder Morgan’s pipeline and storage assets are secured under long-term take-or-pay contracts. These contracts ensure that shippers pay for the capacity reserved, whether they utilize it or not, which provides a steady stream of revenues.
Currently, Kinder Morgan, carrying a Zacks Rank #2 (Buy), is undervalued, with a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 14.00x. This is below the broader industry average of 15.20x.
Cenovus Energy is an integrated energy player with a presence in upstream and downstream businesses. With core operations in Canadian oil sands and North American refining, the company’s business model is relatively stable.
Currently, Cenovus Energy, sporting a Zacks Rank #1 (Strong Buy), is undervalued, with a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 6.75x. This is below the broader industry average of 7.30x. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Cenovus Energy Inc (CVE): Free Stock Analysis Report
Kinder Morgan, Inc. (KMI): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).