In this piece, we’ll check in on shares of Cenovus Energy (TSX: CVE), which recently suffered through quite a steep plunge, putting an end to its impressive year-to-date rally. Despite getting knocked down around 17%, the name is still up more than 60% so far this year.
Despite the painful slip, though, I do think that dip-buyers looking to add to their energy exposure as oil prices fluctuate wildly again might wish to give the name a closer look after pulling the curtain on some quarterly numbers that seemingly failed to impress.
Indeed, perhaps good, but not outstanding results that fail to impress represent great opportunities to snag a discount on a firm that’s still very much on the right track with long-term fundamentals that could shine through at the end of the day.
As for the latest results, the firm clocked in robust numbers across the board. While record production and impressive bottom-line numbers were worth getting behind, investors seemed just a bit concerned about the capital spending ahead.
Add debt-related questions following the recent Athabasca Oil acquisition into the equation as the Bank of Canada looks to raise rates further, and perhaps it’s no mystery why shares of CVE have been on the retreat of late.
For the most part, I do think that the latest dip is a tad on the overdone side. Oil prices have come in quite a bit in recent sessions, and with investors rotating back out of the energy names, it certainly feels like a bear market might not be all too far off for a name like Cenovus.
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Cenovus Energy entering deep-value territory?
For the most part, I view Cenovus Energy as an incredibly cheap name here, with shares going for just 7.8 times forward price-to-earnings (P/E). That’s quite shocking when you consider the magnitude of cash flows flowing in and the fact that the latest quarter set some new records. Of course, oil price fluctuations and interest rate hikes are going to move the needle on the name.
While taking on more debt to fuel a deal might be viewed as a negative at a time when the Bank of Canada is taking its fight against inflation more seriously, I’d be inclined to give Cenovus the benefit of the doubt, especially if the firm can unlock substantial enough synergies. Either way, some analysts out there are no fans of the deal and the debt it entails. It’s hard to blame them.
Any way you look at it, Cenovus stock is a large-cap energy titan that’s in the penalty box right now.
For those who want deeper value and more exposure to the Canadian energy patch after the latest turbulence in energy prices, I’d not be afraid to give the name a closer look. While it’s hard to say if the bottom is in, I do think that the price of admission is starting to get ridiculous. With a solid 2.3% yield, a $10,000 investment in the name would offer $280 per year.
That’s not a massive amount by any stretch, but dividends aren’t the reason to own the name. It’s the capital gains and long-term dividend growth potential. Given the reset bar after the latest results, Cenovus Energy has to be one of my top value plays in the energy space.
