Canadian Natural Resources (TSX:CNQ) is a Canadian oil and natural gas producer with assets spread across North America, the North Sea, and Africa. The company has outperformed the broader equity markets this year amid higher oil prices and its continued solid quarterly performances. CNQ is trading over 20% higher this year. So, let’s examine whether the upward momentum in the company’s stock price could continue.
A surge in oil prices
Oil is on the boil again. Since the beginning of this month, oil prices have increased by over 10%. Earlier this month, Saudi Arabia and Russia extended their production cuts of 1.3 million barrels per day until the rest of this year. Meanwhile, investors fear that a tightening supply could lower global inventories. Besides, a decline in shale production and a recovery in Chinese demand have boosted oil prices.
Meanwhile, analysts are bullish on oil and projecting oil prices to remain elevated in the near-to-medium term. Analysts at Bank of America are projecting that Brent oil, currently trading around $93/barrel, will reach US$100/barrel by the end of this year. Besides, Christyan Malek of JPMorgan expects Brent Oil to trade between US$80 to US$100/barrel in the near term and around US$80/barrel in the long term. So, higher oil prices have created a favourable environment for oil-producing companies, including Canadian Natural Resources.
Canadian Natural Resources
Canadian Natural Resources operates a long-life, low-decline asset base with a total proven reserve life index of around 32 years. Given its effective and efficient operations, flexible capital allocation, and low-risk, high-value reserves, the company is well-positioned to benefit from the favourable market conditions. The increase of WTI (West Texas Intermediate) crude from US$85/barrel to US$100/barrel can increase the company’s free cash flows per share by 30%.
Further, the oil and natural gas company has lowered its net debt from $21.3 billion at the end of 2020 to $12 billion by the end of the second quarter of 2023. It has also repurchased shares worth $8.6 billion since the beginning of 2021. The company, which currently allocates 50% of its free cash flows toward share repurchases and 50% toward lowering its debt, will return 100% of its free cash flows to shareholders once its debt falls below $10 billion.
Canadian Natural Resources plans to make a capital investment of $5.4 billion this year, expanding its asset base. Supported by these investments and solid underlying businesses, the company’s management expects its 2023 production to come between 1.33 million and 1.37 million barrels of oil equivalent per day. The midpoint of this guidance represents a 5.5% increase from the previous year. So, increased production, a higher realization price, lower interest expenses amid falling debt levels, and fewer outstanding shares could boost its financials and drive its stock price in the coming quarters.
Dividends and valuation
Canadian Natural Resources is also one of the top dividend stocks to have in your portfolio. It has increased its dividends at an impressive CAGR (compound annual growth rate) of 21% for the previous 23 years. With the company currently paying a quarterly dividend of $0.90/share, its forward yield stands at a juicy 4.13%. Meanwhile, it trades at 11.2 times analysts’ projected earnings for the next four quarters, which looks cheap considering its healthy growth prospects and an impressive track record of dividend hikes. Considering all these factors, I am bullish on Canadian Natural Resources.
