Baytex Energy (TSX:BTE) is down about 19% in 2024 and currently trades near its low for the year. Contrarian investors are wondering if BTE stock is now undervalued and a good TSX energy stock to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Baytex stock price
About 10 years ago, Baytex was a dividend darling in the Canadian energy patch. The stock traded around $44 per share in the summer of 2014 and paid an annualized dividend of $2.88 after completing its $2.8 billion takeover of Aurora Oil and Gas that operated in the Eagle Ford shale play in Texas.
Unfortunately for shareholders, Baytex closed the deal right at the peak of the oil boom and loaded up the balance sheet with debt. The subsequent plunge in oil prices from US$100 per barrel hammered margins and forced Baytex to slash the dividend. The share price was down to $15 in December of 2014.
Things went from bad to really bad over the following years. The stock eventually bottomed out around $0.30 in 2020. At the time of writing, Baytex trades for close to $3.50. It has been as high as $5.50 in the past 12 months.
Management did a good job of holding on to the best assets throughout the rout. The company also shored up the balance sheet as it benefitted from a rebound in oil prices after the pandemic crash. In early 2023, however, Baytex made another big bet, buying Ranger Oil for US$2.5 billion. This added more assets in the Eagle Ford shale play but also saddled the business with new debt.
Oil price outlook
West Texas Intermediate (WTI) oil spiked above US$100 per barrel again in 2022 but has since been on a downward trend and currently trades near US$70. Analysts broadly expect the price to remain under pressure through much of 2025 due to weak demand from China and production growth in Canada and the United States.
This doesn’t bode well for Baytex and its peers, which are smaller producers with large debt loads. At the time of writing, Baytex has a market capitalization of $2.8 billion. The company finished the third quarter of 2024 with net debt of close to $2.5 billion.
On the positive side, Baytex is on track to hit its 2024 production guidance and is chipping away at the debt position while also buying back stock and paying a dividend with a current yield of nearly 2.5%.
Should you buy now?
Nimble traders can make some good money on Baytex. The stock often bounces by more than 10% on upward moves in oil prices, but it also gives the gains back just as quickly when oil prices retreat.
Oil bulls who can handle volatility might be tempted to start a position near the current level in the hopes that oil prices will move higher in the coming months. Investors who are more conservative should probably consider one of the oil and gas majors with better balance sheets for a buy-and-hold position.
