Energy is one of the most mature sectors in Canada, with multiple upstream and downstream giants. The bulk of Canadian energy exports are to the U.S., an avenue facing some challenges right now due to the looming threat of increased tariffs, which, even though it is lower compared to other exports, might still shift the bottom line of many Canadian energy companies. While this isn’t the only factor shaping the outlook of upstream giants like Canadian Natural Resources (TSX:CNQ), it’s easily one of the most significant.
The company
Canadian Natural Resources is the largest crude oil producer in the country and one of the largest in North America. It is also the second-largest natural gas producer in Canada and has one of the largest energy reserves among North American energy companies. Its asset base, cost structure, and several other fundamentals are also solid.
The company has yet to announce its fourth-quarter (Q4) and full-year results, but what we know from its third-quarter numbers is that it’s financially stable enough. The net earnings fell from 2023 numbers, but adjusted earnings were up. The adjusted funds flow fell slightly between Q3 2023 and Q3 2024, though the company might have made a decent recovery in the last quarter.
The 2025 outlook
As a stock, Canadian Natural Resources has been relatively resilient. Even though it fell quite a bit in 2024 with the rest of the energy sector, and it took the stock years to reach its 2014 level, it managed to do that before the post-pandemic bullish momentum pushed the entire sector up, something few other energy stocks managed to accomplish.
The company is also investing in interesting avenues, including carbon capture, indicating its long-term sustainability vision is comprehensive enough. However, there are several factors pushing against an upbeat 2025 outlook for the company besides the U.S. tariffs.
The first is the gloomy outlook of the U.S. Energy Information Agency (EIA) on oil prices — about 8% down from the 2024 prices. That and the general propped-up state of the Canadian energy sector might culminate in a correction phase. And if it happens in 2025 or even begins in the year, it might negate any gains made before.
OPEC Plus might also retaliate against U.S. tariffs on China, and a significant misalignment in production and pricing may impact Canadian Naturals’s outlook. That leaves the company’s dividends, which have been relatively resilient so far. The company has maintained its dividend growth pattern (twice a year), and the payout ratio seems rock solid. The dividends and eventual recovery might be reasons enough to buy this stock if it gets heavily discounted in 2025.
Foolish takeaway
Canadian Natural Resources is unlikely to offer solid gains in 2025, and the chances of the stock entering a bear market phase are relatively higher. Its history and dividends make it worth buying when it’s discounted, though the right point to buy might not arrive in 2025, and you may have to wait till the next year to buy just before recovery.
