Shares of Canadian Natural Resources (TSX: CNQ) have surged 25% in the first nine months of 2023 and are trading near all-time highs currently. CNQ stock has already created massive wealth for long-term investors, rising 309% in the last 10 years and close to 2,000% since October 2003, after adjusting for dividends.
Valued at a market cap of $94 billion, let’s see if this TSX giant is a good stock to buy right now.
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Is CNQ stock a buy, hold, or a sell?
Canadian Natural Resources owns and operates a diversified portfolio of assets located in North America, offshore Africa, and the U.K. portion of the North Sea. It has a balanced mix of natural gas, light crude oil, bitumen, and SCO (synthetic crude oil), making it one of the most diversified asset portfolios among global independent energy producers.
CNQ has completed the transition to a long-life, low-decline asset base through the development of oil sand mining, upgrading its assets, and its vast thermal in-situ opportunities.
The company is the largest producer of heavy crude oil in Canada and enjoys a competitive advantage through its vast land base, allowing for large-scale drilling development programs. This minimizes cost requirements, which are further managed by owning and operating centralized treating and sand-handling facilities.
Its natural gas exploration strategy focuses on geological evaluation where CNQ targets robust economic program areas generally located close to existing infrastructure. CNQ’s two major exploration plays in process are liquids-rich natural gas and light crude oil in the Montney and Deep Basin.
Canadian Natural Resources benefits from an economic moat due to its lower cost base, which enables the company to derive outsized gains when oil prices are elevated. In the second quarter (Q2) of 2023, Canadian Natural Resources reported a net income of $2.7 billion, as it delivered average daily production volumes of 1,194 thousand barrels of oil equivalent per day in the quarter.
What is the target price for CNQ stock?
In the first six months of 2023, Canadian Natural Resources has returned around $4.3 billion to shareholders via dividends and share buybacks. It remains committed to increasing investor returns, which is evident in its dividend program.
CNQ has increased dividend payouts for 23 consecutive years. Since October 2000, its dividends have been raised at an annual rate of 23%, which is quite exceptional for a cyclical company.
The company has emphasized its planned maintenance activities were completed in Q2, and it now targets strong production volumes and free cash flow in the second half of 2023.
CNQ aims to reduce its net debt to $10 billion, after which it would return 100% of free cash flow to shareholders.
Priced at 12.4 times forward earnings, CNQ stock is quite cheap, making it an enticing bet for income and value investors. It currently pays shareholders an annual dividend of $3.60 per share, indicating a yield of 4.1%. Analysts remain bullish on CNQ stock and expect it to gain close to 9% in the next 12 months.
CNQ’s robust balance sheet, top-tier reserves, and diversified asset base provide it with unique advantages in terms of capital efficiency and flexibility. It is a blue-chip dividend stock that should be part of your equity portfolio.
