Cenovus Energy (TSX:CVE) has emerged as one of the significant integrated oil and gas players in Canada after merging with Husky Energy in 2021. The company’s strength comes from its impressive oil sands, natural gas, and refining production. This has made Cenovus stock a top way Canadian investors look to play commodities markets, particularly the energy sector.
However, the question remains as to where this stock could be headed over the near to medium term. Let’s take a look at how Cenovus stock has performed in the past and where shares of this energy dividend stock could be headed from here.
Strong performance driven by commodity price movements
Over the past year, Cenovus has certainly benefited from robust energy prices. With investors increasingly looking to add exposure to the energy production sector (more so with a new Trump administration heading to the White House next year), this is a stock that could certainly benefit in such an environment. Thus, despite a recent stock price dip, I think there’s room to be bullish on this stock over the next one to three years.
As the company has achieved increased synergies from its Husky merger over time, I think it can see accelerating profit growth. Of course, supply and demand fundamentals in the energy sector will continue to play a big role in dictating how these returns will materialize over time. However, over the near term, there are few integrated energy giants like Cenovus with potential efficiency gains (as much as $1 billion per year) that aren’t yet captured in its current stock price. That’s my near-term view of the stock, at least.
Medium-term outlook
Over the next five years or so, I’d say the picture gets a bit more murky for the likes of Cenovus. For one, no one knows where oil prices will trade over the next week, let alone the next five years. I’ve found most projections to be useless on this front, so trying to project forward earnings becomes a much more difficult picture for a company like Cenovus. That’s partly why I think the company will likely maintain a valuation multiple that’s in line with or potentially lower than the sector.
However, at 11 times earnings, one could make the argument that a significant amount of future uncertainty is already baked into Cenvous’s stock price. That’s good for potential investors looking to put fresh capital to work today.
In my view, investing in a company like Cenovus requires a tremendous amount of patience and the ability to hold on when everyone is selling (and buy more shares) to ride the wave higher in bull markets. For those willing to do so, this is a stock that may be worth dollar cost averaging into and picking up more shares when the market eventually turns down (that’s a near-certainty when it comes to the oil & gas sector).
