Crescent Point Energy (TSX:CPG) Is Buying Back $13 Million in Stock Every 90 Days

Crescent Point Energy Corp (TSX:CPG)(NYSE:CPG) thinks its stock is cheap after a painful 90% decline.

| More on:
Man holding magnifying glass over a document

Image source: Getty Images.

Crescent Point Energy (TSX:CPG)(NYSE:CPG) executives think the company’s stock is an incredible bargain, so much that they’re dedicating millions of dollars every quarter to repurchase its own shares. With limited financing visibility, this is a bold strategy. If management is right, investors could see their investments soar in value.

From 2002 to 2014, Crescent Point shares increased in value by more than 1,000%. Since that peak, however, they’ve shed nearly 90% in value. Management is betting big that the share price will ultimately reverse course. Should you bet alongside them?

Wrong place, wrong time

In 2014, Crescent Point did everything wrong. It acquired CanEra Energy for $1.1 billion, including the assumption of $348 million in debt. Then it acquired assets in Saskatchewan from Polar Star Canadian Oil and Gas for $334 million. Soon after, it bought assets in Saskatchewan and Manitoba from Lightstream Resources for $378 million. It also paid a dividend yield double the average of its North American peers.

At the time, oil was above US$100 per barrel. Within months, prices collapsed below US$50 per barrel. Crescent Point spent and distributed nearly $2 billion at the very top of the market.

Loaded with debt and increasingly uneconomic assets, the stock was ripe for a correction. The company slashed its capital-expenditure budget but, for some reason, continued to execute more deals. In 2015, it purchased Legacy Oil + Gas for $1.5 billion, including the assumption of $967 million in debt. Then it purchased Coral Hill Energy in a private deal valued at $258 million.

Oil prices never recovered, meaning Crescent Point overpaid for nearly all of its acquisitions. With dwindling cash flow, debt was becoming a serious problem. Management slashed the dividend several times, divested many of its projects at fire-sale prices, sold stock at depressed valuations, and raised even more debt.

With this history, it shouldn’t be a surprise that shares have fallen by 90%.

Waiting on a catalyst

It seems like the company is finally on the mend. Non-core assets have been sold, debt has been reduced by 45%, and operating costs have come down significantly. The firm projects more than $200 million in free cash flow in 2020.

Since August, shares are up 30%. Yet they’re miles away from their former highs. The market still doesn’t believe in the company’s turnaround, so executives have taken matters into their own hands. Last year, it repurchased more than $10 million in stock every quarter.

When shares rebound, early investors will see their gains multiplied by these buybacks, or at least that’s the theory. If history is any indication, Crescent Point will prove terrible at allocating capital. After all, the stock still trades at 2003 prices.

Will CPG be the top-performing stock of 2020? Quite possibly. But despite the upside potential, this is simply not a company worth the benefit of the doubt.

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 Ryan Vanzo has no position in any stocks mentioned. 

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »