Is Crescent Point Energy Corp. (TSX:CPG) Stock a Buy Today?

Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) is up 20% in recent weeks. Are more gains on the way?

| More on:
The Motley Fool

The recovery in the oil market is providing a much-needed boost to many producers, but some of the stocks in the energy sector continue to trade near multi-year lows.

Let’s take a look at Crescent Point Energy (TSX:CPG)(NYSE:CPG) to see if it might be an interesting contrarian pick for your portfolio.

New leadership

Crescent Point has a new management team after the company’s founder and a handful of long-serving senior executives stepped aside. The shift came amid increasing pressure from shareholders to get the business back on track.

For years, Crescent Point was a favourite pick among dividend investors who liked the company for its steady and generous payouts. Unfortunately, the oil rout lasted longer than expected, and once the hedging positions started to expire, Crescent Point was forced to trim the monthly distribution from $0.23 per share to the current level of $0.03. That’s good for a yield of 4.2%.

As a result, income investors bailed out and the stock slipped from $45 in 2014 to a low of $7 last month. The recent upswing in oil prices has enticed bottom feeders to start buying, and Crescent Point is currently trading at $8.50 per share.

The company is now focused on shoring up the balance sheet with net debt expected to fall by $1 billion by the end of next year. Crescent Point plans to sell non-core assets identified after a strategic review this summer and is working hard to reduce operating costs. The company cut 17% of its workforce for annual savings of $50 million.

Funds from operations are expected to exceed capital expenditures and dividend payments in 2019, with free cash flow allocated to paying down debt. This is based on the assumption WTI oil will average US$65 per barrel. At the time of writing, WTI trades for US$75, so there is a chance the company could see much better free cash flow. With the hedging positions taken into consideration, every additional $1 change in the average WTI price translates into about $45 million.

Should you buy?

The stock has rallied 20% in less than a month, and more gains could be on the way if the market starts to think the oil rally is going to carry through next year.

Crescent Point owns attractive light-oil assets and that could make it a takeover target, especially while the stock continues to trade as such a low price.

If you have a contrarian investing style and are bullish on oil, it might be worthwhile to add a bit of Crescent Point to the portfolio while the stock remains out of favour.

Other opportunities in the market are also worth considering today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned.

More on Energy Stocks

Canadian small-cap energy companies are performing well.
Energy Stocks

Surge Energy Stock Has Doubled in 2022 and There’s Still Steam Left

Canadian small-cap oil and gas stocks seem unstoppable this year!

Read more »

Oil pumps against sunset
Energy Stocks

Top 3 Energy Stocks for 2022

Energy stocks like Enbridge (TSX:ENB)(NYSE:ENB) should be on the top of your list.

Read more »

oil and natural gas
Energy Stocks

3 Reasons Oil Stocks Are Outperforming Tech This Year

Oil stocks like Baytex should be on your watch list.

Read more »

oil and gas pipeline
Energy Stocks

3 High-Yielding Energy Stocks to Buy Amid Rising Volatility

These three energy stocks can boost your passive income.

Read more »

energy industry
Energy Stocks

3 Cheap Energy Stocks to Buy Right Now to Earn Superior Returns

Given the favourable environment and their cheaper valuations, these three energy stocks can outperform this year.

Read more »

Oil pumps against sunset
Dividend Stocks

1 Energy ETF With an Unbelievable 55% Gain

An energy ETF with proven resiliency continues to outperform and has gained more than 50% thus far in 2022.

Read more »

oil tank at night
Energy Stocks

1 Severely Undervalued TSX Stock in the Red-Hot Energy Patch

Suncor Energy (TSX:SU)(NYSE:SU) stock has been a relative underperformer that could have most room to run as oil stays above…

Read more »

Oil pipes in an oil field
Energy Stocks

Canadian Natural Resources (TSX:CNQ) Stock: A Perfect Pick for Income and Value

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) stock may have doubled up in a year, but shares are still cheap with room to…

Read more »