Trump 2.0 May Benefit TXO Partners LP
Today, I’m putting TXO stock in the spotlight.
Oil prices continue to be stagnant on concerns that the global economy will slow and lead to lower demand and excess supply. Economics 101 tells us that this is not a good situation.
But there are some potentially supportive factors, including the tense Middle East conflict and the re-emergence of President-elect Donald Trump and his fossil-fuel-friendly government.
The key is having patience and waiting for the energy environment to improve. If this happens, we could see a lift in the smaller upstream oil and gas companies like TXO Partners LP (NYSE:TXO) with a market valuation of $679.2 million as of December 16.
TXO Partners acquires and explores for oil, natural gas, and natural gas liquid reserves in North America. Its assets are found in the Permian Basin of West Texas and New Mexico along with the San Juan Basin of New Mexico and Colorado. (Source: “Company Profile,” TXO Partners LP, last accessed December 16, 2024.)
As of the time of writing, TXO stock was down 42.6% from its 52-week high of $23.56 and 54.4% below the consensus one-year target estimate of $25.50. The stock is oversold, providing a contrarian opportunity.
To compensate for the risk, TXO stock currently pays a forward dividend yield of 14.04% that should appeal to income investors willing to assume some risk.
Chart courtesy of StockCharts.com
Profitability Aiming Higher for 2024 Despite Lower Revenues
TXO Partners has grown its revenues by 249.5% from 2020 to the record $380.7 million in 2023. The compound annual growth rate (CAGR) was an impressive 51.8% during this period.
| Fiscal Year | Revenues (Millions) | Growth |
| 2020 | $108.8 | N/A |
| 2021 | $228.3 | 109.9% |
| 2022 | $246.4 | 7.9% |
| 2023 | $380.7 | 54.5% |
(Source: “TXO Partners, L.P. (TXO),” Yahoo! Finance, last accessed December 16, 2024.)
In the third quarter of 2024, the company’s revenues of $68.7 million were slightly down from $69.9 million in the third quarter of 2023. Its revenues from oil and natural gas liquids surged 58.9% and 32.1%, respectively, but this was offset by an 81.4% decline in natural gas revenues. (Source: “FORM 10-Q,” TXO Partners LP, last accessed December 16, 2024.)
In the nine months to September 30, 2024, TXO Partners LP reported $193.5 million in revenues versus $288.7 million in the same period in 2023. The decline was largely due to a 73.1% drop in natural gas revenues. As such, 2024 will see weak results.
Analysts expects TXO Partners LP to report a drop in revenues to $279.4 million in 2024 prior to a rebound of 28.3% to $358.6 million in 2025. (Source: Yahoo! Finance, op. cit.)
The bottom line points to generally accepted accounting principles (GAAP) losses in three of the four years.
| Fiscal Year | GAAP-Diluted EPS | Growth |
| 2020 | -$6.53 | N/A |
| 2021 | $2.10 | 132.2% |
| 2022 | -$0.26 | -112.4% |
| 2023 | -$3.44 | -1223.1% |
(Source: Yahoo! Finance, op. cit.)
On an adjusted basis, the results and outlook look positive despite the expected decline in revenues.
In the third quarter, TXO Partners’ adjusted earnings of $0.02 per diluted share were $0.04 short of the consensus. For the nine-month period, the company delivered a combined $0.53 per diluted share. This is well ahead of the $0.44 per diluted share in 2023.
Analysts expect adjusted earnings to come in at $0.79 per diluted share in 2024 and between $1.41 and a high estimate of $1.80 per diluted share in 2025. (Source: Yahoo! Finance, op. cit.)
TXO Partners’ balance sheet needs some attention, with total debt of $155.1 million and cash of $3.9 million at the end of September. The total debt-to-equity of 24.96% is manageable, but a weak interest coverage ratio in 2023 suggests there’s some work to be done. (Source: Yahoo! Finance, op. cit.)
TXO Stock’s Dividends Jump in 2024
TXO Partners LP is relatively new to the dividend game, with its initial payment of $0.50 per share coming in May 2023. This was followed by five dividend payments to the recent November 2024 dividend of $0.58 per share, versus $0.57 per share in August, $0.65 per share in May, and $0.58 per share in March. (Source: Yahoo! Finance, op. cit.)
The company’s dividend payments totaled $2.58 per share in 2024. For the last three payments, its combined dividends of $1.72 were 14.7% higher than the $1.50 per share for the same three quarters in 2023.
TXO stock has a forward dividend yield of 14.04% based on the November dividend. It’s unclear where the dividend is heading given the extremely high payout ratio of 164.5%, based on the consensus 2025 earnings per share. The possibility of a dividend cut is a risk with this company.
The Lowdown on TXO Stock
TXO stock has high insider ownership of 20.9%, which entices the company’s insiders to produce better results. (Source: Yahoo! Finance, op. cit.)
While the forward dividend yield for TXO stock looks attractive, the risk for income investors will be the size of the future dividends. TXO Partners is a work-in-progress, but its stock could rally if things turn around. Wall Street seems to believe this will happen, given the average target price of $25.50.