Energy stocks are notoriously cyclical, with their ups and downs largely being driven by oil and gas prices. This cyclicality is something that might feel like it’s too much for some investors. But what if I told you that there’s an energy stock that’s relatively shielded from this? One that provides solid shareholder returns in both the good times and the not-so-good times is Canadian Natural Resources (TSX:CNQ).
So, what’s the outlook for this stock in 2025?
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Canadian Natural Resources: A story of resiliency and strong returns
Oil and gas assets naturally have a decline rate. This means that with each passing year, the asset’s production falls a certain amount. A high decline rate means rapidly falling production, and a low decline rate means slowly declining production. As you can imagine, assets with high decline rates need a lot of capital investment to fight the decline and assets with low decline rates require little investment to keep production going. This, in turn, increases the life of the asset and the returns for the producer.
Canadian Natural Resources’s assets have a low decline rate. This means that its oil and gas reserves have a long life (33 years) and require minimal capital investment. In turn, this translates into a business with strong and predictable returns.
In fact, Canadian Natural has a long history of generating solid returns due to this world-class asset base. For example, the company has paid dividends for 25 consecutive years. Also, during this time period, the dividend has increased at a compound annual growth rate (CAGR) of 21%.
What to expect in 2025
I think that 2025 will be another good year for Canadian Natural Resources stock. It’s admittedly difficult to predict oil and gas prices, but what the company has control over, it’s handling exceptionally well. And I think that’s the most important part of the story. It means that in the long run, through the cyclical ups and downs, CNQ stock is likely to continue to generate shareholder value.
For 2025, we can expect Canadian Natural to continue to be focused on returns on capital, as it has been in the past. This means controlling expenses while increasing production and capacity. The company expects production in 2025 to come in between 1.51 million barrels of oil equivalent per day (boe/d) and 1.55 million boe/d. This equates to a 12% production growth rate versus the prior year. Similarly, production per share is expected to increase between 12% and 15% in 2025, for a CAGR of 9% since 2021.
Canadian Natural Resources stock: Valuation
Finally, I’d like to highlight Canadian Natural’s attractive valuation. Trading at 12.8 times this year’s expected earnings and 12.3 times next year’s expected earnings, which is below its peer group despite the fact that it generates stronger returns. In fact, Canadian Natural has a very strong return on equity of 19%, higher than its peer group.
The bottom line
While it’s hard to say exactly where oil and gas prices will land in 2025, it’s not hard to conclude that Canadian Natural Resources stock is one that has great potential in 2025 and beyond.
