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Why Analysts Are Bullish on This Top TSX Energy Stock

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After a dismal 2020, the energy sector is showing signs of a turnaround. Oil prices are surging, and momentum is finally on the side of energy investors. I mean, it’s about time.

Oil prices above the US$60 WTI level means most Canadian oil producers are now profitable. Accordingly, the Canadian energy sector has rightly seen a big boost.

However, some stocks are better than others. And I think oil and natural gas player Enerplus (TSX:ERF)(NYSE:ERF) could be a great fit.

It turns out I’m not the only one bullish on this stock.

Here are two reasons why analysts seem to like Enerplus today.

Strong growth prospects

Enerplus recently announced an agreement with Hess Corporation to acquire assets in the Williston Basin. These underlying assets encompass 78,000 acres of land bordering Dunn County and North Dakota. This land happens to be prime exploration territory.

With oil prices where they are today, premium drilling locations are once again in demand. Enerplus’s decision to move forward with growth is an aggressive one. That said, analysts believe it’s also a prudent one, with high likelihood of providing excellent returns to Enerplus. This also diversifies the company’s prospects away from its Bakken projects.

Furthermore, the deal should be able to be funded via a conservative amount of debt. Investors appear to be cheering the deal as well, with this stock up more than 70% year to date.

Favourable valuation

Along with the announcement of this merger, Enerplus also announced its upcoming five-year plan. Mr. O’Rourke kept his “outperform” rating for these shares following this forecast. Here’s why.

As a result of the company’s annual capital expenditure program of $500 million, Enerplus projects liquids production growth by at least 3.5%. Higher production combined with more favourable prices have led to a greatly improved free cash flow situation. Indeed, the company’s expected to produce free cash flow around $1.8 billion until 2025. This free cash flow growth paves the way for more acquisitions, growing dividends, and future debt repayments. Earnings are expected to rise 37% annually over this period as well.

This stock boasts a forward price/earnings multiple of 6.8 and EBITDA of $343 million. With a five-year estimated PEG ratio of a mere 0.23, this stock makes a valuable addition to a contrarian investor’s portfolio.

Bottom line

Enerplus boasts strong fundamentals and has undertaken some deals that make a lot of sense.

Indeed, I’m intrigued. It’s not every day you’re able to find companies with the sort of valuation and fundamentals of Enerplus. I’d highly recommend investors consider this energy play today.

Like this top energy pick? Here's another one to consider right now:

Should you invest $1,000 in Suncor Energy right now?

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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 Chris MacDonald has no position in any of the stocks mentioned.

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