1 Energy Stock That Looks Undervalued in Early February

Frontera Energy Corp. (TSX:FEC) is a promising energy stock that recently announced a promising discovery, as it thrives in an oil bull market.

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Frontera Energy (TSX:FEC) is a Calgary-based company that is engaged in the exploration, development, and production of crude oil and natural gas in South America. Energy stocks have been a reliable target for Canadians since the beginning of 2021. Should that spur you to snatch up stocks like Frontera Energy in early February? Let’s dive in.

Why this energy stock has spiked to start February

Shares of this energy stock were down 5.2% in late-morning trading on February 2. The stock is still up 13% so far this year. Meanwhile, its shares have soared over 200% in the year-over-year period.

Frontera has surged after making key discoveries at its Guyana offshore oil location. This will enable Frontera to open a second well, potentially bolstering production in a big way going forward.

The Canadian and global oil and gas space has benefited from resurgent demand since lockdowns and restrictions were generally eased in early 2021. The onset of COVID-19 variants like Delta and Omicron has led to some rollbacks on the reopening in Canada and other regions. However, these last holdouts are showing signs of major fatigue in early 2022. A return to normal, especially regular office hours, will have a very positive impact on oil and gas demand.

Beyond that, oil supply has also experienced a pinch since the beginning of 2021. These conditions continue to be bullish for energy stocks like Frontera.

How does the company look for the rest of 2022?

Frontera is expected to unveil its fourth-quarter and full-year 2021 results in early March. In Q3 2021, the company changed its full-year operating EBITDA projection to a range of $360-$380 million. That is improved from its previous projected range between $325-$375 million. Meanwhile, its production average 36,422 barrels of oil equivalent per day (boe/d) in the third quarter of 2021 — up 2% from the previous year.

The company’s net sales realized price increased 7% year over year to $59.47/boe. That was driven by an increase in the benchmark oil price as well as lower losses on risk-management contracts. Frontera posted a realized loss on risk-management contracts of $6.6 million in the third quarter of 2021 — up from $24.8 million in the second quarter of 2021.

It delivered net income of $38.5 million, or $0.40 per share, in the most recent quarter. This was up from a net loss of $25.6 million, or $0.26 per share, in the previous year. Frontera’s net income was bolstered by higher income from operations.

Should you buy this energy stock right now?

Back in September 2021, I’d looked at dividend stocks Canadians may want to buy as volatility picked up. Unfortunately, Frontera doesn’t offer income for its shareholders. This energy stock last had a price-to-earnings ratio of 20. That puts Frontera in favourable value territory at the time of this writing. I’m looking to snatch up this energy stock in early February.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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