Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) is down more than 45% in the past 12 months.
Let’s take a look at the beaten-up oil and gas producer to see if the sell-off has gone too far.
Value play?
As I write this article, Crescent Point trades for $11.80 per share, and WTI oil is priced at US$49.70 per barrel.
A year ago, oil traded for about US$51.70, and investors paid $22 per share to own a piece of Crescent Point.
So, why is Crescent Point off 45% when oil is only down about 4%?
The company issued $650 million in new shares last September to fund a boost in the Q4 and 2017 capital plans. Investors were not pleased with the dilution, but that doesn’t account for such a huge difference in the stock price today.
If the company’s balance sheet were in trouble or if production were sliding, it would make more sense that the market doesn’t want to pay more for the stock, but that’s not the situation.
Crescent Point’s debt is reasonable. The company finished Q1 2017 with net debt of $4 billion, putting it well within its debt covenants. The stock has fallen since then but the company is still in good shape.
Unused credit facilities sat at $1.45 billion as of March 31, so there is ample financial flexibility.
Regarding production, 2017 exit output is expected to be about 10% higher than the daily average at the end of last year.
Takeaway?
Either the stock was overvalued a year ago, or Crescent Point might be getting oversold.
Another issue could be concerns over a potential border tax coming from the U.S. government. Pundits have varying opinions on the subject, with some saying a tax is not in the cards, and others believing the energy sector would be exempt if a tax were imposed.
At this point, it would be best to assume anything is possible under the Trump administration.
Should you buy?
Oil prices continue to fluctuate on supply predictions.
OPEC is trying to drive prices higher by removing 1.8 million barrels per day from the market. If OPEC succeeds, and U.S. production doesn’t rise too quickly, oil prices could recover through the end of the year.
If you believe that is the way things will pan out, Crescent Point is an interesting contrarian bet today.
However, if you believe WTI oil is headed to US$40 again, it would be wise to stay on the sidelines.
