Energy stocks Cenovus Energy (TSX:CVE)(NYSE:CVE) and Vermilion Energy (TSX:VET)(NYSE:VET) both received a major boost of over 13% this week. Both Cenovus and Vermilion started the week out around $15 per share and have grown to over $17 per share as of writing.
What happened?
Both energy stocks seem to have grown thanks to a boost in target price from analyst Travis Wood from National Bank. Wood believes Cenovus stock should have a target price of $25 per share, with Vermilion aiming for around $30 per share.
In the case of Cenovus stock, other analysts weighed in as well. Credit Suisse analysts believe the stock could reach up to $22 per share. So, that would give Cenovus potential upside of between 29% and 49% and give Vermilion up to 76% upside.
Why now?
There are multiple factors weighing in on the change in target price for Vermillion and Cenovus. These energy stocks had a major 2021, making strong acquisitions and synergies along the way. This all sets them up for a strong 2022, and commodity prices continue to rise.
In the case of Vermilion, analysts particularly like the Corrib natural gas project on the coast of Ireland. Analysts believe the deal is well timed, as it increased Vermilion’s stake. Not only that, but the company managed to get great terms thanks to be one of the very few large players in the region. It will remain a significant free cash flow generator, despite being a low-risk deal.
As for Cenovus, the company has been selling off assets to focus on shareholder value, and shareholders have been eating it up. It sold 337 Husky gas stations last month for $660 million, as well as its Tucker asset to $800 million. The company also released a strategic update, planning to allocate 50% of excess free funds flow in 2022 to shareholder returns. These sales will all be used to reduce debt.
So what?
There’s a similarity here that some Motley Fool investors may be missing. Both energy stocks have been finding paths towards clean energy solutions. Cenovus recently joined other oil companies in bringing greenhouse gas emissions down to net zero. Vermilion’s Corrib deal is also a clean energy initiative. So, these new strategies perhaps prove to analysts and investors alike that the companies are setting up for future revenue.
But what’s great is that both energy stocks have the cash to make these movies. Sales from Cenovus and free cash flow from Vermilion allow it to start the inevitable transition. And this is great news for long-term investors.
Now what?
Both Cenovus stock and Vermilion stock offer significant opportunities to get in while they’re still cheap. Analysts continue to bump their target prices. And yet Cenovus and Vermilion offer significant value for investors. Vermilion trades at 3.79 times earnings, and Cenovus has an EV/EBITDA of just 7.54. Plus, both offer dividends that you can lock in right now.
So, if you’re looking for energy stocks that will provide you with solid gains now, and in the future, I would certainly recommend Cenovus and Vermilion. Both saw major gains of 13% and up just this past week. But there are more double-digit gains to come, according to analysts.
