Chicago, IL – April 7, 2025 – Today, Zacks Equity Research discusses Harbour Energy HBRIY, Tullow Oil TUWOY and Capricorn Energy CRNCY.
Industry: Oil & Gas - E&P - International
Link: https://www.zacks.com/commentary/2440384/3-international-ep-stocks-to-watch-in-an-undervalued-industry
The Zacks Oil and Gas - Exploration and Production - International industry is navigating a challenging macro environment. Escalating trade tensions, driven by sweeping U.S. tariffs, are clouding the demand outlook by threatening global economic growth. Meanwhile, OPEC+ is ramping up production faster than expected, raising oversupply concerns just as Brent crude struggles to hold recent gains.
Long-term risks also loom large, with clean energy adoption and electric vehicles slowly chipping away at future fossil fuel demand. Still, not all is bleak. Geopolitical disruptions—like potential tariffs tied to Venezuelan crude—could tighten supply and support prices.
Moreover, the industry trades well below its historical average and broader market multiples. For investors willing to look past short-term volatility, names like Harbour Energy, Tullow Oil and Capricorn Energy stand out as the ones with potential in a recovering cycle.
The Zacks Oil and Gas - International E&P industry consists of companies primarily operating outside the United States and focused on the exploration and production (E&P) of oil and natural gas. These firms find hydrocarbon reservoirs, drill oil and gas wells, and produce and sell these materials to be refined later into products such as gasoline, fuel oil, distillate, etc.
The economics of oil and gas supply and demand is the fundamental driver of this industry. In particular, a producer’s cash flow is determined by realized commodity prices. In fact, all E&P companies are vulnerable to historically volatile prices in the energy markets. A change in realizations affects their returns on drilling inventory and causes them to alter production growth rates. These operators are also exposed to exploration risks where drilling results are uncertain.
Trade War and Tariff Shock Could Dent Global Oil Demand: The sweeping U.S. tariffs announced by the Trump administration are casting a long shadow over energy markets. With tariff rates on key trade partners ranging from 10% to 34%, global economic growth projections are being revised down. This widespread disruption to trade could severely weaken industrial activity and fuel demand. As countries retaliate, including China targeting U.S. energy exports, Brent prices face downside risk from a potential global demand slowdown triggered by these aggressive trade policies.
OPEC+ Supply Surge Threatens Market Balance: The surprise move by OPEC+ to raise crude output by 411,000 barrels per day in May—triple the expected pace—has added significant pressure on Brent crude. This accelerated supply increase, especially from eight key producers, including Saudi Arabia and Russia, comes at a time when macroeconomic uncertainty is already weighing on sentiment. With spare capacity ready to be tapped and a surplus potentially building later in the year, oversupply concerns are growing, making it harder for prices to maintain recent gains.
Venezuela-Linked Tariff Risk May Tighten Global Supply: The potential for U.S. tariffs on countries importing Venezuelan crude adds a layer of uncertainty to global oil flows. While Venezuelan exports aren't massive, the rerouting and pricing pressures from reduced access could cause localized supply disruptions. This creates a bullish environment for Brent, especially as global refiners may seek alternative sources at higher costs. Investors should consider that even small geopolitical frictions, like this one, can push Brent prices higher by tightening availability in key markets.
Clean Energy Shift Poses Long-Term Risk: The global energy transition is gaining momentum, with renewables and electric vehicles (EVs) steadily positioning themselves as viable alternatives to fossil fuels. As EV adoption accelerates and technological advancements drive down clean energy costs, traditional oil demand could face a structural decline. While renewable infrastructure is still scaling and high upfront costs remain a barrier, steady policy support and innovation are narrowing the gap. If these trends continue, oil consumption could see material erosion over the next 5 to 10 years.
The Zacks Oil and Gas – International E&P industry is an eight-stock group within the broader Zacks Oil - Energy sector. It currently carries a Zacks Industry Rank #158, which places it in the bottom 36% of 245 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates challenging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. As a matter of fact, the industry’s earnings estimates for 2025 have gone down 93.7% in the past year.
Despite the dull near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
The Zacks Oil and Gas - International E&P industry has fared worse than the broader Zacks Oil - Energy Sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 50.7% over this period compared with the broader sector’s decrease of 2.2%. Meanwhile, the S&P 500 has gained 10.7%.
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, the industry is currently trading at 3.96X, significantly lower than the S&P 500’s 16.75X. It is also below the sector’s trailing 12-month EV/EBITDA of 4.84X.
Over the past five years, the industry has traded as high as 9.60X, as low as 2.23X, with a median of 4.21X.
Harbour Energy: A pure-play upstream global oil and gas producer, Harbour Energy targets high-return, short-cycle drilling opportunities. The Zacks Rank #2 (Buy) company's robust financial position and strict capital discipline support competitive shareholder returns and the optionality to grow inorganically. Harbour Energy's $11.2 billion acquisition of substantially all of Wintershall Dea AG's upstream assets has augmented its asset base significantly.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, over the past 30 days, the Zacks Consensus Estimate for Harbour Energy’s 2025 earnings has moved up 200%. The Zacks Consensus Estimate for 2025 earnings of the company indicates 610% growth. Harbour Energy’s shares have lost around 30% in a year.
Tullow Oil:Tullow Oil is a London-based hydrocarbon producer and explorer, focusing mainly on Africa. Tullow Oil’s significant positions in discovered and emerging basins, as well as focus on capital discipline, should result in a noticeable improvement in profitability. In particular, the oil and gas finder’s operational excellence and technical expertise stand it in good stead.
This Zacks Rank #3 (Hold) firm has a Value Score of A. Tullow Oil’s current market cap is roughly $233.2 million. The Zacks Consensus Estimate for 2025 earnings of Tullow Oil indicates 300% growth. The company’s shares have lost around 63% in a year.
Capricorn Energy: Founded in 1981, Capricorn Energy’s productive capacity is based onshore Egypt, where it focuses on the lower-cost rapid-payback Western Desert. CRNCY’s attractive asset base and operational efficiency in the country provide it with a competitive advantage in an energy-hungry domestic and regional market.
The Zacks Consensus Estimate for 2025 earnings of Capricorn Energy indicates 150% growth. Valued at around $211.7 million, CRNCY is currently a Zacks #3 Ranked company. Capricorn Energy’s shares have gone down around 11% in a year.
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Tullow Oil PLC (TUWOY) : Free Stock Analysis Report
Capricorn Energy PLC Unsponsored ADR (CRNCY) : Free Stock Analysis Report
Harbour Energy PLC Sponsored ADR (HBRIY) : Free Stock Analysis Report
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