City analysts expect strong progress ahead with earnings for FTSE 250 company Hunting (LSE: HTG), and the share price has been gathering momentum.
It’s clear from the chart the stock and the business have been recovering well. There was volatility in the oil and gas industry during and after the pandemic because of unstable commodity prices, such as oil. Hunting suffered because its customers were having a hard time.
The firm provides precision-manufactured equipment and premium services for the global oil & gas market but that’s not the whole story. It also serves the defence, power generation, space and aviation sectors.
We can’t ignore cyclicality
However, despite the diversification of operations, the biggest risk for shareholders remains the cyclical nature of the company’s end markets. Things are going well for the business now, but that situation may change fast. If there’s another general economic downturn or some other global shock, it would be easy to lose money with Hunting shares.
Nevertheless, today’s (29 August) half-year results report is full of positives. In the first six months of 2024, revenue rose by 3% year on year and adjusted diluted earnings per share shot up by more than 60%.
However, there may be more to come. The order book increased by 32% to “record” levels. That outcome was partly driven by large orders from the Kuwait Oil Company during the period.
Meanwhile, those City analysts reckon normalised earnings are set to increase by almost 40% next year on top of the healthy gains expected for 2024.
Chief executive Jim Johnson said the results demonstrate the strength of offshore and international markets. On top of that there’s been “steady progress” in the energy transition industry.
Expanding into new technologies
In a separate announcement today, the company revealed $60m worth of orders from major North Sea operators for organic oil recovery contracts over a five-year period. It seems the operational momentum is continuing at pace, and for the time being there’s little sign of any cyclical weakness.
Johnson reckons the orders are a “significant” step towards the expansion of organic oil recovery technology. They demonstrate “confidence” in Hunting’s ability to deliver new technologies for the energy industry.
Overall, Johnson’s assessment of the outlook for the business was upbeat and positive.
But is the stock a buy for investors right now? I think it may well be worth consideration as part of a diversified portfolio for those wanting exposure to the oil, gas and energy sectors. After all, the valuation doesn’t look excessive.
With the share price near 417p, the stock is changing hands at around just over 10 times next year’s predicted earnings. That compares to the FTSE All-Share index with its forward-looking price-to-earnings ratio around 12.5.
On balance, and despite the risks, I reckon Hunting’s strong operational momentum and modest-looking valuation makes the business well worth deeper research and consideration now.
