Up 10% Last Month, Can CNQ Stock Keep Cruising?

Given the favourable environment and attractive valuation, I expect the uptrend in CNQ’s stock price to continue.

| More on:
grow dividends

Image source: Getty Images

Last month, OPEC+ (Organization of the Petroleum Exporting Countries) announced that it would lower its oil production by 1.2 million barrels per day from May. With this new announcement, the total output from OPEC and its allies could fall by 3.7 million barrels per day, which is estimated to be around 3.7% of global demand. As expected, the announcement led to an increase in oil prices, thus boosting stock prices of oil-producing companies, including Canadian Natural Resources (TSX:CNQ). Amid the favourable environment, the company’s stock price rose 10% last month.

Despite the rise, CNQ still trades at a discount of over 4% from its 52-week high. So, let’s assess whether the uptrend in the company’s stock price can continue.

CNQ’s 2022 performance

Last month, CNQ reported a solid 2022 performance, with its adjusted net earnings from operations growing by 73.4% while generating cash flows of $19.4 billion from its operating activities. Higher price realization, increased production, and lower interest expenses amid debt repayment drove its financials. With its solid cash flows, the company repaid $3.4 billion of debt, thus strengthening its balance sheet. Over the previous two years, CNQ has reduced its net debt by around 50% to $10.5 billion as of December 31, 2022.

Now, let’s look at its growth prospects and outlook.

CNQ’s growth prospects

Despite the volatility, analysts are bullish on oil. They project Brent crude to reach US$90/barrel by the end of this year. Supply concerns amid the recent production cuts and rising demand, specifically from China, could increase oil prices in the near-to-medium term. Besides, the company has planned to invest around $5.2 billion this year, strengthening its asset base. Supported by these investments, the company’s management expects to increase its natural gas and crude oil production by over 5% this year. Further, the decline in interest expenses amid lower debt levels could boost its financials in the coming quarters.

Meanwhile, CNQ will report its first-quarter earnings for 2023 on May 4. Analysts are projecting the company to report an adjusted EPS (earnings per share) of $1.65, representing a 42% decline from its previous year’s quarter. A lower realized price could weigh on the company’s first-quarter earnings.

Dividends and valuation

Supported by its solid cash flows, CNQ has rewarded its shareholders with dividend growth and share repurchases. Last year, it spent $5.6 billion on share repurchases and $4.9 billion on dividends. The company has extended its share repurchase program this year by repurchasing 6.2 million shares for $0.5 billion as of March 1.

CNQ operates long-life, low-decline assets generating healthy cash flows, allowing it to consistently increase its dividends. Over the last 23 years, it has expanded its dividends uninterruptedly at a CAGR (compounded annual growth rate) of 21%. Its forward dividend yield currently stands at 4.36%.

CNQ’s management had earlier stated that once its net debt falls below $10 billion, it would return 100% of its cash flows to shareholders. With its net debt at $10.5 billion, I expect the company to continue its dividend growth.

Investors’ takeaway

Despite the recent surge in its stock price, CNQ trades at a cheaper valuation, with its NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples at 2.5 and 10.9, respectively. So, given the favourable environment, its growth initiatives, and attractive valuation, I expect the uptrend in the company’s stock price to continue.

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 Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources. The Motley Fool has a disclosure policy.

More on Energy Stocks

little girl in pilot costume playing and dreaming of flying over the sky
Energy Stocks

The U.S. Stocks Every Canadian Investor Needs to Know About

Boeing, UGI Corporation, and Exxon Mobil are three U.S. stocks I'd buy today.

Read more »

Silhouette of businessman sit on chair and hold a cigar and looking at the city in night.
Energy Stocks

Passive Income: How to Make $104 Per Month Tax Free in 20 Years

By simply choosing the right stock, and investing in it on a consistent basis, you can create massive passive income…

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Where to Invest in Oil Stocks in June 2023

Suncor Energy is a Canadian oil stock that's set up to benefit from strong oil prices, as it trades at…

Read more »

edit Sale sign, value, discount
Energy Stocks

Buy Alert: Major Canadian Energy Stocks Are on Sale in June 2023 

Did you hear of a June sale? Well, Canadian energy stocks are trading near their lows in June 2023. It's…

Read more »

Dollar symbol and Canadian flag on keyboard
Energy Stocks

Canadian Blue-Chip Stocks: The Best of the Best for June 2023

TSX blue-chip stocks such as Enbridge can help you generate steady gains and benefit from a high dividend yield in…

Read more »

oil and gas pipeline
Energy Stocks

Pipeline to Prosperity: Invest in Enbridge Stock and TC Energy

Canadian pipeline stocks are buy-and-hold stocks, as oil and gas exports significantly contribute to Canada's GDP.

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Monday, June 5

An early morning rally in oil prices could lift TSX energy stocks at the open today.

Read more »

oil and natural gas
Energy Stocks

These Canadian Energy Stocks Are Bargain Buys for 2023

Here are two of the best Canadian energy stocks you can buy on the dip in 2023 to hold for…

Read more »