The TSX fell below 20,000 points on March 10, 2023, when news broke out that federal regulators took over financially distressed Silicon Valley Bank. While financial stocks are under fire from bank failures in the U.S., the energy sector continues to suffer from the drastic drop in oil prices.
Michael Tran, managing director of global energy strategy at RBC Capital Markets, thinks the pressure in the oil market reflects recessionary pricing. However, he said the downturn has nothing to do with the sector and expects the commodity to rebound.
Canadian energy stocks have collectively lost 11.6% in the last five trading days, but three names remain strong buys right now. Athabasca Oil (TSX: ATH) continues outperforming with its 22.8% year-to-date gain. Imperial Oil (TSX: IMO) and Suncor Energy (TSX: SU) trade at a slight discount, and their current share prices are good entry points.
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High-flyer
Athabasca Oil’s operational and financial performance in 2022 is spectacular. The $1.7 billion low-leveraged company reported record free cash flow (FCF) of $160.6 million, representing a 74.7% increase from a year ago. The total production of 35,262 barrels of oil equivalent per day (boe/d) exceeded its guidance of 34–35,000 boe/d.
Notably, net income rose 25% year over year to $572.3 million. For 2023, management plans to allocate 75% of excess cash flow (at the minimum), or adjusted funds flow minus sustaining capital, to shareholders. Also, Athabasca forecasts FCF to reach $270 million this year.
At $2.96 per share, the trailing one-year price return is 45.8%. Athabasca is a high-growth stock, as evidenced by the 1,750% return in 3 years, which translates to a compound annual growth rate (CAGR) of 163.8%.
Strongest year
The weakness of Imperial Oil is temporary, and a rebound is inevitable. This Exxon Mobil subsidiary achieved its best-ever quarterly utilization of 101% in Q4 2022. In the same quarter, net income jumped 112% to $1.7 billion. For the full year, net income is $7.3 billion or 196% higher than in 2021.
Its Chairman, President and CEO, Brad Corson, said, “Our financial results this past year are the strongest in company history, driven by record operating performance across our assets.” This $36.7 billion crude oil and petrochemical producer has raised dividends for 28 consecutive years. The current share price is $62.85 (-4.09% year to date), while the dividend yield is a decent 2.7%.
Oil bellwether
Suncor Energy investors are down 5.7% year to date ($40.05 per share) but enjoy a 4.83% dividend. Last year, the $53.1 billion oil bellwether benefitted from higher crude prices and upstream production. In 2022, net earnings increased 120% to $9.1 billion compared to 2021.
Because of the solid financial results, the board approved a 23.8% dividend hike in Q4 2022. Besides reducing net debt by more than $2.5 billion, Suncor returned a record $7.7 billion to shareholders, of which $2.6 billion went towards dividend payments. Former Imperial Oil President and CEO Rich Kruger is now Suncor’s chief executive.
Broad macro issue
RBC’s Tran said falling oil prices are a broad macro issue but expects them to climb by the second half of 2023 when China’s economy reopens. Meanwhile, Athabasca, Imperial Oil, and Suncor Energy should hold up well against market headwinds.
