1 Energy Giant Down 17%? Why Cenovus Looks Undervalued Today

Cenovus stock may be down, but it’s more likely due to outside issues rather than internal ones.

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It’s been a choppy year for Canadian energy stocks, with many names getting caught in the crossfire of lower oil prices, global uncertainty, and sector-wide maintenance activity. Cenovus Energy (TSX:CVE), one of Canada’s top integrated oil and gas companies, has not been immune. Its share price is down roughly 17% from its 52-week high. And yet, this dip might be setting up an opportunity for long-term investors who know where to look.

Not internal

Let’s be clear: the recent pullback isn’t due to some catastrophic failure or long-term decline; it’s mostly timing. In the second quarter, Cenovus had planned turnarounds at several key assets, a wildfire shut-in at Christina Lake, and temporary production delays across its oil sands and offshore operations. That combination lowered upstream production to 765,900 barrels of oil equivalent per day (BOE/d), down from 818,900 in the first quarter (Q1). That naturally impacted earnings, but the core business remains strong and is poised for a rebound.

From a financial standpoint, the quarter wasn’t perfect, but it wasn’t weak either. Cenovus posted $2.4 billion in operating cash flow and $1.5 billion in adjusted funds flow. Free funds flow came in at $355 million, with net earnings of $851 million, or $0.45 per share. While that’s down from previous periods, management made it clear that the dip is temporary and that key growth projects are about to kick into high gear.

One of the biggest upcoming catalysts is Narrows Lake, which achieved first oil in July and is expected to ramp up to 30,000 barrels per day by year-end. Meanwhile, the West White Rose project is 92% complete, with drilling set to begin later this year and production expected in mid-2026. Cenovus also brought four new boilers online at Foster Creek, boosting steam capacity by 80,000 bbls/d, an investment that will support higher production in the coming quarters.

Considerations

Speaking of production, Cenovus’s downstream performance was actually a bright spot. Crude throughput was a strong 665,800 bbls/d, even as some facilities were undergoing turnaround. The U.S. refining segment showed a narrowing operating loss, and adjusted market capture reached 58%, benefiting from improved crack spreads. This part of the business offers a natural hedge when upstream prices are volatile and could boost earnings as market conditions stabilize.

Cenovus is also rewarding shareholders. In Q2 alone, it returned $819 million, including $301 million in buybacks and $368 million in dividends. Its base dividend yields about 3.9% today, and there’s potential for growth as the energy stock resumes excess free funds flow once maintenance wraps up. Long-term debt is steadily declining, with net debt now sitting at $4.9 billion, well on track toward the company’s $4 billion target.

So, why is Cenovus down 17% from its highs? In short, investors are reacting to one soft quarter without appreciating the full context. Q2 was marked by unavoidable production disruptions and scheduled turnarounds. Those are now behind the company. Meanwhile, major production capacity is about to come online, downstream margins are improving, and debt is falling, all while shareholders get paid nearly 4% to wait.

Bottom line

Investors looking for a solid energy stock with both income and growth potential may want to take advantage of the current price. The underlying business is still generating billions in cash, reinvesting in growth, and buying back shares. Once production ramps back up and free funds flow normalizes, sentiment could shift quickly. Meanwhile, you could collect a dividend coming in at $768 annually from a $20,000 investment.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
CVE$20.79961$0.80$768.80Quarterly$19,980.19

So, while the share price has dipped, it’s hard to argue that Cenovus’s intrinsic value has fallen with it. If anything, the company looks more capable than ever of delivering strong returns over the next several years. The market may be stuck in the past, but forward-looking investors have a chance to buy a well-run energy giant on sale.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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