On Mar 19, Zacks Investment Research downgraded independent oil and gas explorer Canadian Natural Resources Ltd. (CNQ) to a Zacks Rank #4 (Sell).
Why the Downgrade?
Calgary, Alberta-based CNQ reported fourth quarter 2012 non-GAAP earnings per share of 31 cents on Mar 7, lagging the Zacks Consensus Estimate of 44 cents by 30% and the year-ago profit of 80 cents by 61%.
Results were dragged down by lower natural gas output, which declined 11.4% from the prior-year period due to CNQ’s decision to shut production volumes and to allocate capital for oil projects that will provide higher return.
Following the weak last quarter results, the tendency for a downward estimate revision has been more obvious in recent times. In fact, the Zacks Consensus Estimate for the first quarter has moved down by 7 cents (or 13%) to 47 cents per share over the last 30 days. The Zacks Consensus Estimate for the full year is $2.23, down 13 cents (or 6%) in the same timeframe
Additionally, CNQ pursues long-term oil projects, which call for large capital outlays and several years of development before any cash flow is realized. Therefore, cost and time overrun in the company’s ongoing projects have a negative impact on the stock’s performance.
CNQ shares have also been held back by operational challenges, continued weakness in natural gas prices and a fresh round of cost inflation in the oil sands regions.
Stocks that Warrant a Look
While we expect CNQ to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock, one can look at Range Resources Corp. (RRC), Enerplus Corp. (ERF) and EPL Oil & Gas Inc. (EPL) as good buying opportunities. These North American energy explorers – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.
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