Should You Buy, Sell, or Hold Husky Energy Inc. Following its Q4 Earnings Release?

Husky Energy Inc. (TSX:HSE), one of the largest integrated energy companies in Canada, released fourth-quarter earnings before the market opened on February 12 and its stock responded by rising over 2.5% in the trading session that followed. Even after this post-earnings pop, the company’s stock still sits over 23% below its 52-week high, so let’s take a closer look at the results to determine if we should consider buying into the rally, or wait for it to subside.

Breaking down the fourth-quarter results

Here’s a summary of Husky Energy’s fourth-quarter earnings compared to its results in the same period a year ago.

Source: Husky Energy Inc.

Husky Energy reported a net loss of $603 million, or $0.65 per diluted share, in the fourth quarter compared to a net gain of $177 million, or $0.18 per diluted share, in the year-ago period, as its revenue decreased 3.7%. However, it is also worth noting that excluding certain one-time charges, the company reported a net gain of $147 million in the fourth quarter compared to a net gain of $375 million in the year-ago period.

Husky Energy’s steep decline in net income can be attributed to lower commodity costs and crack spreads, amongst other factors, while its 3.7% decline in revenue can be attributed to revenue falling 12.1% to $3.92 billion in its downstream segment, which was only partially offset by a 15.6% increase to $2.37 billion in its upstream segment.

The company also noted that its production averaged 360,000 barrels of oil equivalents per day in the fourth quarter, an increase of 5.6% from the third quarter and an increase of 16.9% from the year-ago period.

Here’s a quick breakdown of 10 other notable statistics and updates from the report compared to the year ago period:

1. Revenue declined 6.9% to $2.5 billion in its U.S. Refining & Marketing segment (downstream).
2. Revenue declined 26.6% to $945 million in its Canadian Refined Products segment (downstream).
3. Revenue declined 1.9% to $475 million in its Upgrading segment (downstream).
4. Revenue increased 12.7% to $1.71 billion in its Exploration & Production segment (upstream).
5. Revenue increased 23.8% to $660 million in its Infrastructure & Marketing segment (upstream).
6. Produced 243,000 barrels of crude oil and natural gas liquids per day, an increase of 8.5% from the year-ago period.
7. Produced 702,000 million cubic feet of natural gas per day, an increase of 39.3% from the year-ago period.
8. Cash flow from operating activities increased 91.1% year-over-year to $1.58 billion.
9. The quarter ended with $1.27 billion in cash and cash equivalents, an increase of 41.9% from the third quarter.
10. Husky paid out a quarterly dividend of $0.30 per share for a total cost of approximately $292 million.

Lastly, Husky Energy announced that it will be maintaining its quarterly dividend of $0.30 per share, and the next payment will come on April 1 to shareholders of record at the close of business on March 13.

Is now the time to buy shares of Husky Energy?

Husky Energy is one of Canada’s largest integrated energy companies, and lower oil prices led it to post year-over-year declines in both earnings per share and revenue, but the market shrugged off the weak results and sent it stock over 2.5% higher.

I think Husky Energy’s stock represents a great long-term opportunity today, even after the post-earnings pop, because it still trades at inexpensive valuations, it pays a bountiful dividend, and I think the price of oil will head back towards $80 per barrel by the conclusion of 2015.

First, Husky Energy’s stock trades at just 23.9 times fiscal 2014’s diluted earnings per share of $1.20 and a mere 9.6 times analysts’ adjusted earnings per share projection of $2.99 for fiscal 2015, both of which are very inexpensive compared to its long-term growth potential. Second, the company pays an annual dividend of $1.20 per share, giving its stock a generous 4.2% yield. I think this makes it both a value and dividend play today. Finally, I think the price of oil will head higher over the course of the year and end up around $80 per barrel, leading to investors piling into energy stocks like Husky Energy.

With all of the information above in mind, I think Husky Energy represents one of the best long-term opportunities in the energy industry, and investors should consider initiating positions today.