Oil prices plunged to historic lows due to the pandemic. In fact, investors may remember that oil prices briefly went negative last year on a technical move.
However, commodities have made a strong recovery as of late. Hence, for investors who remain optimistic regarding oil prices, now is the right time to consider high-leverage energy plays. In that respect, investors should buy shares of Baytex Energy (TSX:BTE)(NYSE:BTE). Here’s why.
Analysts remain optimistic
As per Baytex’s latest quarterly earnings report for the period ended March 31, 2021, Baytex produced 78,780 boe/d. This exceeded analyst estimates of 77,300 boe/d. Additionally, these numbers represent an increase of nearly 12% when compared to the company’s Q4 numbers. Furthermore, the company’s cash flow jumped 90.5% on a quarter-over-quarter basis to $0.28, exceeding analyst projections by $0.23.
With the crucial operating metrics of Baytex surpassing consensus estimates for Q1 2021, the company has increased its capital program budget for this year. Its spending will now range from $285 million to $315 million, a significant increase when compared to prior estimates of $225-$275 million. Furthermore, this company has upgraded its production guidance for 2021 in addition to putting forward an impressive five-year plan, generating estimated free cash flow of $1 billion.
Patrick O’Rourke, an analyst at ATB Capital Markets, has raised his target from $1.60 to $1.75. Moreover, National Bank’s Dan Payne has increased his target price to $2 from $1.75.
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A speculative high-risk, high-reward play
As noted previously, oil prices were beaten to a pulp due to the pandemic-induced crisis. However, commodities have been soaring of late, with oil currently trading around the US$65 level. Without a doubt, this clearly has a positive impact on Baytex Energy given the company’s high exposure to oil prices.
This stock has been soaring this year; since January 1, 2021, its shares have skyrocketed over 135%. At the time of writing, it trades around the $1.65 mark. Yes, Baytex ended 2020 with long-term debt worth $1.8 billion, which is quite high for a company with a market capitalization rate of under $1 billion. However, it has been taking measures to reduce its debt balance.
These measures have clearly begun to pay off.
As far as high-leverage oil plays go, Baytex remains one of the best options for investors today.
This is a company with a higher risk profile due to its debt burden which remains elevated. However, for those who believe oil prices will continue to climb higher, this is a stock that could produce outsized returns.
Like this top energy pick? Here's another one to consider right now:
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Fool contributor Chris MacDonald has no position in any of the stocks mentioned.