Berry Stock: Tariff Talks Bullish for This 14%-Yielder
February 18, 2025
Berry Corporation Delivers Another Good Quarter
Industry dynamics aside, tariff talk from President Donald Trump should keep energy stocks and oil and gas companies like Berry Corporation (NASDAQ:BRY) in the headlines for weeks, if not months.
On February 10, oil prices got a boost after President Trump announced tariffs on all steel and aluminum imports into the U.S. News of the tariffs sent Brent crude up to more than $75.00 per barrel, with West Texas Intermediate rising to $71.52 per barrel. The steel industry is one of the most energy-intensive industries, using fossil fuels to make steel. (Source: “Trump says he will announce 25% steel and aluminum tariffs Monday, and more import duties are coming,” AP, February 10, 2025.)
Oil prices could get a big boost in early March should the president go ahead with his 10% tariff on Canadian oil. Despite the big tariff, chances are good that Canadian crude will still flow into the U.S.; most Midwest refiners are designed to process heavy Canadian oil, and you can’t just flip a switch to substitute with light oil.
On top of that, should President Trump go ahead with those tariffs on Canadian crude, customers in the Midwest could juice gas prices by $0.35 per gallon. And we all know that politicians do not want to make their voters mad. Especially when they campaigned on the notion that tariffs would not…raise prices. (Source: “Why US Refiners Won’t Ditch Canadian Crude,” OilPrice, February 3, 2025.)
Fears of a global trade war impact investors’ risk appetite, and they’re spilling over into oil and gas. As long as tariffs are in the news, it will put this sector in the headlines.
Those are the near-term tailwinds. Longer term, the outlook for oil and gas remains robust. Despite the push for renewable resources, oil is extremely important for the global economy. As a result, even after so-called peak oil, which isn’t expected to occur until after 2045, the decline in global oil demand will not be steep. (Source: “A history of ‘unrealized’ peaks,” Organization of the Petroleum Exporting Countries, January 17, 2024.)
This is, of course, good news for American oil and gas exploration and production (E&P) companies like Berry.
About Berry Corporation
Berry is an independent upstream energy company with a focus on onshore, long-lived oil and gas reserves with low geologic risk and decline. The Dallas-Texas-based company operates in two business segments: E&P and well servicing and abandonment. (Source: “2024 Q3 Earnings,” Berry Corporation, November 7, 2024.)
Its E&P assets, characterized by high oil content, are predominantly located in rural areas in California and Utah with a low population. Berry’s California assets are in the San Joaquin Basin (100% oil), while its Utah assets are in the Uinta Basin (60% oil and 40% gas).
The following are the company’s key operational metrics as of the third quarter of 2024:
- Average production: 24,800 barrels of oil equivalent per day (BOE/D)
- Oil production: 22,800 BOE/D
- California production: 20,100 BOE/D
- Utah production: 2,700 BOE/D
Swings to Q3 Profitability
Despite volatility within the oil and gas industry, Berry Corporation was able to report “another good operational quarter.” This included a 121% increase in total revenue to $259.7 million. Oil, natural gas, and natural gas liquids revenue came in at $154.4 million, while services revenue was $25.4 million. (Source: “Berry Corporation Reports Third Quarter 2024 Results,” Berry Corporation, November 7, 2024.)
Third-quarter net income was $70.0 million, or $0.91 per share, a big improvement over the third-quarter 2023 net loss of $45.0 million, or a loss of $0.60 per share. Adjusted net income was $11.0 million, or $0.14 per share.
Berry’s cash flow from operations rallied 29% to $71.0 million, while free cash flow (FCF) improved 17% on an annual basis and 55% on a quarterly basis to $45.0 million.
On the financial front, the company entered a new $545.0-million term loan facility that will allow it to successfully complete transformative debt refinancing.
Commenting on the results, Fernando Araujo, the company’s chief executive officer, said, “Berry delivered another good operational quarter with production ramping up as we exited September, and we are on track to reach the mid-point of our full year production guidance.”
Araujo added, “We have now completed our 2024 drilling plan and have permits in-hand to support activities well into the new year, including drilling new wells and sidetracks and working over existing wells. Based on current permitting processes and our healthy California inventory, we are confident we can maintain consistent production levels for 2025, as we have for the last six years.”
Q3 Dividend of $0.03 Per Share
Thanks to its strong FCF, Berry is able to provide investors with a reliable dividend. It pays a quarterly fixed dividend and sometimes adds on a variable dividend. In the second quarter, Berry stock paid a dividend of $0.17 per share, including a $0.12-fixed-price-per-share and $0.05-per-share variable dividend. (Source: “Stock Information,” Berry Corporation, last accessed February 10, 2025.)
In the third quarter, the company declared a fixed dividend of $0.03 per share, or $0.58 per share on an annual basis, for a forward yield of 13.75%.
While dividend hogs may not like the fact that a variable dividend means the payouts fluctuate, it’s important to note that Berry stock has paid a dividend for the last seven consecutive years. This means that the company didn’t suspend its dividend during the 2020 health crisis; however, at $0.58 per share, the annual dividend is a lot smaller than in previous years. That could change significantly in 2025.
Berry Stock: 107% Upside Potential?
Berry stock struggled in the back half of 2024, but it has shown signs of life in the opening weeks of 2025. The stock is down 27.6% on an annual basis, but it’s up 5.5% year to date.
That could be just the beginning, with conservative Wall Street analysts providing a 12-month share price target range of $6.40 to $9.00 per share on Berry stock. This points to a potential move of 47% to 107%.
Chart courtesy of StockCharts.com
The Lowdown on Berry Stock
Berry Corporation is an E&P company with properties in Texas and Utah. It delivered another solid quarter with total revenue more than doubling. The company swung to profitability and cash flow from operations and FCF both registered double-digit gains.
Wall Street remains bullish on Berry stock, with analysts expecting the company’s earnings to rise from $0.51 per share in 2023 to $0.57 in 2024, before slipping slightly to $0.56 per share in 2025. However, there are high estimates of $0.70 per share in 2024 and $0.76 per share in 2025.
Investment companies are also confident in the direction in which Berry Corporation is going, with 251 institutions holding 87.98% of all outstanding shares. Some of the biggest holders of Berry stock include BlackRock Inc, Vanguard Group Inc, and Dimensional Funds Advisors LP. (Source: “Holders,” Yahoo! Finance, last accessed February 10, 2025.)
