A lot of people on Wall Street are bullish on energy right now, with investment bank Goldman Sachs (NYSE:GS) recently forecasting that the price of Brent crude oil, the international benchmark, will be at $86 a barrel by year’s end. But not so fast. In mid-July, the International Energy Agency (IEA) lowered its global oil demand forecast for the first time this year, citing a worsening economic outlook. The world’s leading energy watchdog said oil demand is likely to climb by 2.2 million barrels per day in 2023 and reach an average of 102.1 million barrels per day. That projection is a downward revision of 220,000 barrels of crude oil a day. The IEA had previously predicted an increase of 2.4 million barrels of oil each day for the remainder of the year.
The new outlook comes as energy companies report second-quarter financial results that are down substantially from a year ago when crude oil prices peaked at $122 a barrel. Looking at the big picture, now would be a good time to get out of troubled oil stocks. Here are three energy stocks to unplug on dim prospects.
Suncor Energy (SU)
Canadian oil and natural gas producer Suncor Energy (NYSE:SU) has so many problems that they read like a laundry list. The latest issue to hurt the troubled energy producer was a July cyberattack that temporarily crippled its network of more than 1,500 Petro-Canada retail gas stations and led to the shutdown of its consumer rewards program after it was determined that hackers stole members’ contact information.
A few weeks before the cyberattack, Suncor announced plans to cut 1,500 jobs by the end of this year as it seeks to reduce costs and bolster its finances. The Calgary-based oil producer said the workforce reduction will be spread across the entire organization. That is after the company reported that its first-quarter net income declined 34% from a year earlier to $1.81 billion.
If all this weren’t enough, Suncor is under persistent pressure from activist shareholder Elliott Investment Management to improve its financial performance and boost its stock price, both of which have trailed other energy companies. SU stock has declined 25% over the last five years, making it an energy stock to sell.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is a perfect example of an energy company whose earnings have been cut in half this year — literally. Exxon Mobil just reported a 56% decline in its Q2 profit due to a drop in crude oil prices. The company said its Q2 net income amounted to $7.88 billion, or $1.94 a share, compared to a record $17.85 billion profit recorded a year earlier. Revenue was also lower in the quarter, falling 27% to $80.80 billion year-over-year.
The company did its best to put a positive spin on its latest print, stressing that it achieved structural cost savings of $8.3 billion from 2019 levels during Q2. Exxon Mobil also highlighted that it distributed $8 billion in cash to shareholders in Q2, including $3.7 billion in dividend payments. But how long will that last if the company’s financial results continue to deteriorate? XOM stock is flat on the year, having risen only 0.85% since January.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) is learning the hard way not to cut its dividend. The company’s share price has declined 13% this year, and the drop is due almost entirely to the fact that Devon Energy has reduced its dividend payout to shareholders multiple times in recent months. As part of its Q2 financial release, the company announced that it is lowering its dividend payout for the fourth time, citing dwindling cash flow as the reason.
Going forward, Devon Energy will pay a quarterly dividend payment of 49 cents a share, down 32% from 72 cents previously. The multiple cuts to the dividend have understandably angered shareholders, many of whom have hit the sell button on DVN stock. The latest cut to the dividend comes as Devon Energy reported $690 million in Q2 net earnings, the lowest level in two years. Free cash flow fell 50% to $326 million year-over-year in Q2.
On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
