While tech stocks are relentlessly sinking, Canadian energy names are rising almost one way. Rapidly increasing demand and plateauing supply have pushed oil and gas prices to record levels this year. Interestingly, the strength in energy commodities is not expected to wane in the near future, so TSX energy stocks could also follow.,
Canadian energy companies are set to report their first-quarter 2022 earnings in the next few weeks. While some of them report next week, many bigwigs plan to report early next month. Notably, another quarter of impressive growth could drive TSX energy stocks even higher next month.
Oil and gas prices reached record levels in Q1 2022, amid the Russia-Ukraine war. And they are still comfortably trading above US$100 a barrel today. Note that the current levels of energy commodities are still way higher than what producers anticipated. So, the earnings and free cash flow growth in the first quarter will likely be significantly high than their guidance.
Moreover, investors can expect an even more upbeat outlook from Canadian energy on their upcoming Q1 earnings call. In the last few quarters, repayment of debt and strengthening the balance sheet were some of the focus points. Now, with the substantial windfall gains, companies could achieve those targets faster. Thus, the focus can now shift to dividend hikes and boosting shareholder returns.
TSX energy stocks have more than doubled in the last 12 months. Despite such a steep gain, there is still significant growth potential, considering the earnings growth potential, balance sheet upgrades, and supporting macro environment.
TSX energy stock #1
Canada’s top natural gas stock Tourmaline Oil (TSX: TOU) is one name that I am very bullish on. It plans to release its Q1 numbers on May 11. The stock has returned 175% in the last 12 months, notably beating its peers. Higher production, superior cash flow growth, and margin expansion could boost its Q1 performance. In addition, it is already sitting on a large cash base, which helped it issue special dividends twice. Investors can expect another round of dividend increases soon, given the solid free cash flow growth.
Declining debt and expected higher dividends will likely lift investor sentiment next month. The stock could continue to trade strong amid the gas price strength and strong quarterly performance.
TSX energy stock #2
The country’s biggest energy company Canadian Natural Resources (TSX: CNQ)(NYSE: CNQ), recently hit a $100 billion market cap on its stock price strength. It will report Q1 earnings on May 4. According to analysts’ estimates, it will report earnings of $2.43 per share for Q1 2022, marking a massive 135% increase year over year.
CNQ stock has gained 125% since last year and yields a decent 3.6% at the moment. As it has been the theme in the sector, CNQ has also been aggressively repaying debt and deleveraging its balance sheet. So, surplus cash can be used to distribute among shareholders.
TSX energy stock #3
Another attractive TSX energy bet is Birchcliff Energy (TSX: BIR). Since last year, natural gas has gained 170% and reached a 14-year high this week. Birchcliff expects substantial free cash flow growth this year, likely making it debt free by 2023. It pays a trivial $0.04 per share dividend at the moment. But we might see a significant dividend hike in the next few quarters.
A small-cap TSX energy stock BIR has soared 215% since last year. Solid financial growth and a potential to reach its net-debt target sooner could drive the stock even higher.
