Canadian Natural Resources (TSX:CNQ) is a crude oil and natural gas production company operating in Western Canada, the North Sea, and offshore Africa. The company has underperformed the broader equity markets this year. Its year-to-date performance has been flat, in contrast to the S&P/TSX Composite Index, which is up roughly 19%. Falling crude oil prices and concerns over global economic growth amid the ongoing trade war have weighed on investors’ sentiments, dragging the company’s stock price down. Currently, it trades at a 17.2% discount compared to its 52-week high.
Therefore, let’s assess its historical performances, growth prospects, and valuation to determine buying opportunities in the stock.
CNQ’s historical performances
CNQ operates a diversified and balanced asset base that requires lower capital reinvestments. Additionally, its large, low-risk, high-value reserves and efficient operations have reduced its expenses, thereby lowering its WTI (West Texas Intermediate) breakeven point. Therefore, the company enjoys healthy profitability and cash flows, enabling it to raise its dividends consistently.
The Calgary-based energy company has increased its dividend at an impressive annualized rate of 21% over the past 25 years and currently offers a forward dividend yield of 5.44%. Along with consistent dividend growth, the company has rewarded its shareholders with consistent share repurchases. Since the beginning of 2021, the company has repurchased approximately $14 billion worth of shares. Notably, its average total shareholder return for the previous 20 years stands at 8.9%, outperforming the broader equity markets. Now, let’s look at its growth prospects.
CNQ’s growth prospects
Despite the ongoing transition towards renewable energy, ExxonMobil, in its latest outlook report, has stated that oil and natural gas will form 55% of the global energy mix by 2050. It is just a 1% decline compared to 56% in 2024. Additionally, the rising energy demand due to population growth, rising income levels, and industrialization could drive the demand for oil and natural gas higher, thereby benefiting oil and natural gas producers, including CNQ.
Meanwhile, CNQ has significant oil and natural gas reserves, with a total proven reserve life index of 32 years. Also, these reserves contain a substantial percentage of high-value petroleum products. Moreover, the company is strengthening its production capabilities through a capital investment of $6 billion this year. It has planned to drill 182 heavy crude oil multilateral wells this year, which is 26 wells more than it had initially budgeted. Along with these expansions, its continued acquisitions could boost its production in the coming quarters.
Meanwhile, the company’s management predicts its average total production could come between 1,510 and 1,555 MBOE/D (thousands of barrels of oil equivalent per day). The midpoint of the guidance represents a 12.4% increase from the previous year. Given its increased output and lower breakeven point, I expect the company to continue posting healthier financial results in the coming quarters.
Investors’ takeaway
The recent pullback has dragged CNQ’s valuation down to attractive levels. Currently, it trades at NTM (next-12-month) price-to-sales and NTM price-to-earnings multiples of 2.5 and 12.7, respectively. Given its consistent dividend growth, healthy growth prospects, and cheaper valuation, I am bullish on CNQ despite the near-term volatility. Investors with a medium- to long-term horizon may consider accumulating the stock to generate superior returns.
