Is Tourmaline Oil Stock a Buy Before its Q4 Earnings?

Including dividends, Tourmaline Oil stock returned 80% last year and 620% since the pandemic.

| More on:
Oil pumps against sunset

Image source: Getty Images

Natural gas producer stocks have been on a significant downtrend lately and have corrected nearly 35% since November 2022. Among the bigwigs, investor-favourite Tourmaline Oil (TSX:TOU) has witnessed a similar weakness. It plans to release fourth-quarter (Q4) 2022 earnings on March 7. Whether its numbers ease or worsen the ongoing selling pressure remains to be seen.

TOU stock and natural gas prices

Gas-weighted TSX energy producers like Tourmaline Oil had an excellent 2022. Including dividends, TOU stock returned 80% last year and 620% since the pandemic, remarkably beating its peers. However, this year has started off a bit differently.

Natural gas prices have fallen almost 80% in the last few months, thanks to warmer weather and oversupplied markets. Unsurprisingly, this has driven weakness in gas-producing companies as well.

Tourmaline Oil has unique assets with low-cost infrastructure that drives the company’s profitability. Nearly 80% of its total production is focused on natural gas, while the rest is crude oil and condensate.

Tourmaline Oil ahead of its Q4 2022 earnings

According to the data compiled by Yahoo Finance, analysts expect Tourmaline Oil to earn $2.29 per share for the quarter that ended on December 31, 2022. This marks a 22% drop compared to Q4 2021. The lower earnings expectations have already seemed to have priced in the stock. How the management sees the future and commentary regarding dividends going forward will drive the stock in the short to medium term.

For the entire of 2023, Tourmaline Oil expects a free cash flow of $2.6 billion. In the last 12 months, it reported record free cash flows of $2.74 billion, mainly due to higher gas prices. Notably, higher free cash flows were enough to improve its balance sheet and reward shareholders.

At the end of 2020, Tourmaline Oil had a total debt of $1.9 billion and has recently dropped to $0.4 million. It will save on interest expenses in 2023, likely improving the bottom line.

Massive deleveraging and dividends

As a result, Tourmaline Oil has achieved some of the best leverage positions in years and across the industry. Moreover, it was quite aggressive with shareholder dividends as well and paid $7.9 per share dividend last year, including specials.

Tourmaline was among the few Canadian energy producers last year to delight shareholders with special dividends. In comparison, peers mainly focused on share buybacks to utilize their excess cash.

In 2023, even though Tourmaline’s guided free cash flows for 2023 are lower than 2022 — a major chunk of them will go toward shareholder returns. That’s because last year’s cash flow priority of deleveraging will not be there this year, as the debt target has already been overachieved. So, investors can expect dividends and share buybacks in 2023.

Conclusion

TOU stock dropped 35% since its 52-week highs. While gas prices might not recover in the short term, TOU stock continues to look attractive from a valuation standpoint. Its resilience in the low-price environment and strong balance sheet make it stand tall among its peers. Moreover, its free cash flow growth and allocation to shareholder returns will likely create shareholder value.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

More on Energy Stocks

edit Businessman using calculator next to laptop
Energy Stocks

If You’d Invested $5,000 in Brookfield Renewable Partners Stock in 2023, This Is How Much You Would Have Today

Here's how a $5,000 lump-sum investment in BEP.UN would have worked out from 2023 to present.

Read more »

Pipeline
Energy Stocks

Here Is Why Enbridge Is a No-Brainer Dividend Stock

For investors looking for a no-brainer dividend stock worth holding for the long term, here's why Enbridge (TSX:ENB) should be…

Read more »

Money growing in soil , Business success concept.
Energy Stocks

3 Canadian Energy Stocks Set for a Wave of Rising Dividends

Canadian energy companies are rewarding shareholders as they focus on sustainable financial performance.

Read more »

Solar panels and windmills
Top TSX Stocks

1 High-Yield Dividend Stock You Can Buy and Hold Forever

There are some stocks you can buy and hold forever. Here's one top pick that won't disappoint investors anytime soon.

Read more »

Oil pumps against sunset
Energy Stocks

Is it Too Late to Buy Enbridge Stock?

Besides its juicy and sustainable dividends, Enbridge’s improving long-term growth prospects make it a reliable stock to hold for the…

Read more »

oil and gas pipeline
Energy Stocks

Why TC Energy Stock Is Down 9% in a Month

TC Energy (TSX:TRP) stock has fallen by 9% in the last month, as it continues to divest assets to strengthen…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

If You Like Cenovus Energy, Then You’ll Love These High-Yield Oil Stocks

Cenovus Energy is a standout performer in 2024, but two high-yield oil stocks could attract more income-focused investors.

Read more »

Man considering whether to sell or buy
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Enbridge now offers a dividend yield near 8%.

Read more »