Yahoo Finance Here's Why Hold Strategy is Apt for Cenovus (CVE) Stock Now
Cenovus Energy Inc. CVE has witnessed upward earnings estimate revision for 2024 in the past 60 days.
The company, with a Zacks Rank #3 (Hold), has gained 13.4% over the past six months compared with the 12.6% growth of the composite stocks belonging to the industry.
Image Source: Zacks Investment Research
Factors Favoring the Stock
Global crude oil prices have risen substantially over the past year. The positive trajectory in oil prices is a boon for Cenovus’ upstream operations.
For 2023, Cenovus expects upstream production of 800,000-840,000 barrels of oil equivalent per day (Boe/d), indicating an increase from 786,200 BOE/d reported in 2022. With the recent surge in commodity prices, higher production will boost the company’s bottom line.
Like upstream businesses, Cenovus benefits from its strong refinery utilization. The company expects downstream throughput volumes of 610,000-660,000 barrels per day for 2023, indicating a 28% increase from the 2022 reported level.
Between 2020 and 2024, Cenovus expects compound annual production growth of 2-3%. The integrated energy player’s moves, including the Terra Nova asset life expansion project and restarting the West White Rose project, can enable it to attain the target. With disciplined capital investment and production growth, it expects consistent growth in earnings and fund flows during the period.
Cenovus’ commitment to the energy transition is commendable. The company plans to reduce absolute greenhouse-gas emissions by 35% by 2035 end. CVE commits to reaching net-zero emissions by 2050.
The company continues to reduce debt through free funds flow generation and asset divestments. In 2022, it generated $7,270 million in free funds flow, reflecting a major improvement from the year-ago free funds flow of $4,685 million. Cenovus intends to allocate some of the free funds for increasing shareholder returns.
Risks
One factor that can offset the positives to some extent is Cenovus’ significant debt exposure compared with the composite players belonging to the industry. Thus, it will not be able to combat the uncertainty as good as other firms in the same space. With a cash balance of C$4,524 million at the fourth-quarter end, the integrated energy player’s capability of paying a long-term debt of C$ 8,691 million is in question.
Key Picks
Investors interested in the energy sector might look at the following companies that presently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Antero Midstream Corporation AM reported fourth-quarter 2022 adjusted earnings per share of 20 cents, beating the Zacks Consensus Estimate of 17 cents. The strong quarterly results were primarily driven by higher freshwater delivery volumes and increased average freshwater distribution fees.
For 2023, Antero Midstream expects a net income of $340-$380 million, indicating an increase from the $326.2 million reported in 2022.
Liberty Energy Inc. LBRT announced fourth-quarter 2022 earnings per share of 82 cents, which handily beat the Zacks Consensus Estimate of 71 cents. The outperformance reflects the impacts of strong execution and increased service pricing.
LBRT is expected to see an earnings surge of 61.1% in 2023. As part of its shareholder return policy, LBRT repurchased $125 million of its stock at an average price of $15.29 a piece since July and reinstated a quarterly cash dividend of 5 cents in the fourth quarter.
Oceaneering International, Inc.’ OII fourth-quarter 2022 adjusted profit of 6 cents per share missed the Zacks Consensus Estimate of a profit of 17 cents. The underperformance was due to weaker results in certain segments.
For 2023, Oceaneering projects consolidated EBITDA of $260-$310 million and free cash flow generation of $75-$125 million.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Antero Midstream Corporation (AM) : Free Stock Analysis Report
Oceaneering International, Inc. (OII) : Free Stock Analysis Report
Cenovus Energy Inc (CVE) : Free Stock Analysis Report
Liberty Energy Inc. (LBRT) : Free Stock Analysis Report
