BUSINESS
Adams Resources & Energy, Inc., through its subsidiaries, primarily engages in the marketing, transportation, terminalling, and storage in various crude oil and natural gas basins in the United States. The company operates through three segments: Crude Oil Marketing, Transportation and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt and Dry Bulk; and Pipeline Transportation, Terminalling and Storage of Crude Oil. It purchases crude oil and arranges sales and deliveries to refiners and other customers primarily onshore in Texas, Oklahoma, North Dakota, Michigan, Wyoming, and Louisiana; and owns and operates a fleet of 201 tractor-trailer rigs and maintains approximately 180 pipeline inventory locations or injection stations.
INVESTMENT RATING
AE’s future returns on capital are forecasted to fall short of the cost of capital. Accordingly, the company is expected to be a modest Value Eraser.
Adams Resources & Energy has a current Value Trend Rating of D (Negative).
The Value Trend Rating reflects inconsistent signals from PTR’s two proprietary measures of a stock’s attractiveness. Adams Resources & Energy has a neutral Appreciation Score of 45 but a poor Power Rating of 20, and the Negative Value Trend Rating results.
Adams Resources & Energy’s stock is selling below targeted value. The current stock price of $28.40 compares to targeted value 12 months forward of $33.
This neutral appreciation potential results in an appreciation score of 45 (55% of the universe has greater appreciation potential.)
Adams Resources & Energy has a Power Rating of 20. (AE’s poor Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 20% of companies in the universe.)
Factors contributing to this poor Power Rating include: recent price action has been unfavorable; and the trend in AE’s earnings estimates has been unfavorable in recent months. An offsetting factor is the Petroleum, Excluding Bulk Station – Wholesale comparison group is currently in a modestly favorable position.
INVESTMENT PROFILE
AE’s financial strength is low. Financial strength rating is 25.
Relative to the S&P 500 Composite, Adams Resources & Energy Inc. has slightly more Value than Growth characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that AE is higher risk. Relative weaknesses include: low historical profitability, low financial strength, low expected growth, and high earnings variability. AE’s valuation is low: high dividend yield, high P/E ratio, and low price/book ratio. AE has unusually low market capitalization.
CURRENT SIGNALS
Adams Resources & Energy’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Adams Resources & Energy’s current technical position is mixed. The stock price is in a 0.7 month up move. The stock has appreciated 24.7% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
Adams Resources & Energy Inc. (NYSEAMERICAN: AE) has recently experienced significant negative changes in fundamentals: significant quarterly sales deceleration occurred, and significant quarterly earnings deceleration occurred.
The stock is currently rated D.
Adams Resources & Energy Inc. (NYSEAMERICAN: AE) stock increased 1.2% on 5/6/24. The shares closed at $28.40. However, trading volume in this advance was below average at 80% of normal. The stock has been extremely weak relative to the market over the last nine months and has declined -4.9% during the last week.
CASH FLOW
In 2023, Adams Resources & Energy generated a very significant increase in cash of +$14.18 million (+46%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$27.70 million. Non-operating sources contributed +$4.04 million (+15% of EBITDA). Cash taxes consumed -$2.70 million (-10% of EBITDA). Re-investment in the business amounted to -$15.83 million (-57% of EBITDA). On a net basis, debt investors provided +$1.66 million (+6% of EBITDA) while equity investors withdrew -$0.67 million (-2% of EBITDA).
AE’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Adams Resources & Energy Peer Group. In most years, Adams Resources & Energy was in the top quartile and second quartile. Currently, Adams Resources & Energy is substantially above median at +15% of EBITDA (+$4.04 million).
AE’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Adams Resources & Energy Peer Group. In most years, Adams Resources & Energy was in the third quartile and top quartile. Currently, Adams Resources & Energy is at median at -10% of EBITDA (-$2.70 million).
AE’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Adams Resources & Energy Peer Group. In most years, Adams Resources & Energy was in the top quartile and lower quartile. Currently, Adams Resources & Energy is slightly above median at -57% of EBITDA (-$15.83 million).
AE’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Adams Resources & Energy Peer Group. In most years, Adams Resources & Energy was in the second quartile and top quartile. Currently, Adams Resources & Energy is substantially above median at +6% of EBITDA (+$1.66 million).
AE’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Adams Resources & Energy Peer Group. In most years, Adams Resources & Energy was in the third quartile and lower quartile. Currently, Adams Resources & Energy is above median at -2% of EBITDA (-$0.67 million).
AE’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Adams Resources & Energy Peer Group. In most years, Adams Resources & Energy was in the top quartile and lower quartile. Currently, Adams Resources & Energy is above median at +51% of EBITDA (+$14.18 million).
AE’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Adams Resources & Energy Peer Group as well. In most years, Adams Resources & Energy was in the second quartile and top quartile. Currently, Adams Resources & Energy is substantially below median at +2%.
PROFITABILITY
AE’s return on equity has improved very significantly since 2014. The current level is 0.2% versus the high of 3.9% and the low of -0.8%.
The key to the story for AE is a very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors.
The productivity of AE’s assets declined over the full period 2014-2023: asset turnover has experienced a downtrend even as it experienced a very sharp recovery after the 2020 low.
AE’s pretax margin enjoyed a volatile overall uptrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
AE’s return on equity is at the lower quartile (0.2%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is slightly below median (0.1%) reflecting asset turnover that is upper quartile (7.60X) and unavailable pretax margin .
Tax “keep” rate (income tax management) is lower quartile (43.6%) resulting in after tax return on assets that is unavailable.
Financial leverage (leverage) is upper quartile (3.90X).
GROWTH RATES
There are no significant differences between Adams Resources & Energy’s longer term growth and growth in recent years.
Adams Resources & Energy’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 6.0% per year.
Total asset growth has been 6.8% per year.
Annual E.P.S. growth has been -13.9% per year. (More recently it has been -83.0%.)
Equity growth has been -2.3% per year.
No consensus growth rate forecast is available for Adams Resources & Energy.
Relative to the Adams Resources & Energy Peer Group, Adams Resources & Energy’s historical growth measures are erratic. Total asset growth (6.8%) has been upper quartile. Revenue growth (6.0%) has been at the upper quartile. Equity growth (-2.3%) has been slightly above median. E.P.S. growth (-13.9%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Adams Resources & Energy’s stock price performance has been volatile and significantly below market. Between July, 2013 and May, 2024, Adams Resources & Energy’s stock price fell -58%; relative to the market, this was a -86% loss. Significant price moves during the period: 1) February, 2023 – January, 2024: -57%; 2) October, 2020 – April, 2022: +104%; and 3) March, 2015 – February, 2016: -51%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -20.2% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through April, 2024 of -20.2% is substantially below median relative to Adams Resources & Energy Inc. Peer Group.
Current 5-year total return performance of -0.9% is lower quartile relative to the S&P 500 Composite.
Through April, 2024, with lower quartile current 5-year total return of -0.9% relative to S&P 500 Composite, Adams Resources & Energy’s total return performance is substantially below median relative to Adams Resources & Energy Inc. Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, AE’s overall valuation is normal. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is upper quartile. Price/equity ratio is lower quartile. Ratio of enterprise value/assets is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Relative to Adams Resources & Energy Peer Group, AE’s overall valuation is low. The highest factor, the price/earnings ratio, is at the upper quartile. Ratio of enterprise value/earnings before interest and taxes is at the upper quartile. Price/equity ratio is lower quartile. Ratio of enterprise value/assets is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Adams Resources & Energy has a major value gap compared to the median. For AE to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.05X to 0.46X. If AE’s ratio of enterprise value/revenue were to rise to 0.46X, its stock price would be higher by $439 to $467.
For AE to achieve upper quartile valuation relative to the Adams Resources & Energy Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.05X to 0.69X. If AE’s ratio of enterprise value/revenue were to rise to 0.69X, its stock price would increase by $687 from the current level of $28.
VALUE TARGETS
AE’s future returns on capital are forecasted to fall short of the cost of capital. Accordingly, the company is expected to be a modest Value Eraser.
Adams Resources & Energy’s current Price Target of $35 represents a +18% change from the current price of $29.50.
This neutral appreciation potential results in an appreciation score of 45 (55% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 45, the low Power Rating of 20 results in an Value Trend Rating of D.
Adams Resources & Energy’s current Price Target is $35 (+13% from the 2023 Target of $31 and +18% from the 04/30/24 price of $29.50). This slight rise in the Target is the result of a +13% increase in the equity base and a +0% change in the price/equity multiple. The forecasted decline in growth has no impact on the price/equity multiple and the forecasted decline in return on equity has no impact either. However, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 4.0% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2015 and 2023. The current forecast is below the 2022 peak of 7%.
PTR’s growth forecast is 10.0% — substantially above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2020 low of 0%.
PTR’s cost of equity forecast is 5.1% — in line with recent levels. Forecasted cost of equity suffered a dramatic, variable increase between 2015 and 2023. The current forecast is steady at the 2017 low of 4.2%.
At Adams Resources & Energy’s current price of $29.50, investors are placing a negative value of $-6 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 11.0% per year, and a return on equity of 5.4% versus a cost of equity of 5.9%.
PTR’s 2025 Price Target of $35 is based on these forecasts and reflects an estimated value of existing assets of $40 and a value of future investments of $-5.
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