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Canadian Natural Resources (CNQ) Up 4.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Canadian Natural Resources (CNQ). Shares have added about 4.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Canadian Natural Resources due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Canadian Resources Posts Strong Q3 Results

Canadian Natural reported third-quarter 2019 adjusted earnings per share of 79 cents, above the Zacks Consensus Estimate of 60 cents. The beat was driven by robust production. Precisely, Canada’s largest oil producer’s average daily output of 1,176,361 barrels of oil equivalent increased nearly 11% from the year-ago period and surpassed the Zacks Consensus Estimate of 1,163,913 barrels of oil equivalent.

However, the bottom line was lower than the prior-year adjusted earnings of 85 cents as average realized commodity prices fell.

Total revenues of $4,666 million beat the Zacks Consensus Estimate of $4,460 million. Also, the top line improved from third-quarter 2018 revenues of $4,514 million.

Apart from trumping revenue and earnings estimates, the company’s third-quarter results offered something more to buoy long-term investors’ optimism as free cash flow totaled $1,471 million after capital expenditure and dividend payments.

Production & Prices

Canadian Natural reported quarterly production of 1,176,361 barrels of oil equivalent per day (BOE/d), up by 10.9% from the prior-year quarter. Oil and natural gas liquids (NGLs) output (accounting for more than 79% of total volumes) increased to 931,546 barrels per day (Bbl/d) from 801,742 Bbl/d a year ago. Crude oil and NGLs production from operations in North America – including synthetic crude oil production of 432,203 Bbl/d and bitumen output of 206,395 Bbl/d – came in at 882,865 Bbl/d, higher than the year-ago quarter’s 754,238 Bbl/d due to the contribution from buyout of Devon Energy’s Canadian business.

Natural gas volumes recorded a 5.4% year-over-year decline - from 1,553 million cubic feet per day (MMcf/d) to 1,469 MMcf/d in the quarter under review. Production in North America totaled 1,425 MMcf/d compared with 1,489 MMcf/d in the prior year.

Canadian Natural’s realized natural gas price was C$1.64 per thousand cubic feet compared with the year-ago level of C$2.32. Realized oil and NGLs price decreased 4.7% to C$55.19 per barrel from C$57.89 in the third quarter of 2018.

Costs, Capital Expenditure

Total expenses incurred in the quarter were C$4,796 million, higher than C$3,754 million recorded a year ago. Ramp up in transportation costs, foreign exchange loss and the absence of revaluation gains bloated the overall costs. In the reported quarter, capital expenditure summed C$963 million excluding costs associated with the Devon Energy assets.

Dividend & Share Repurchase

The company, which is committed to adding shareholder value, returned C$447 million and C$169 million via dividends and stock buybacks, respectively.

Balance Sheet

As of Sep 30, the company had C$176 million in cash and cash equivalents, and a long-term debt of C$18,453 million, representing a debt-to-capitalization ratio of approximately 34.7%.

Guidance Maintained

Canadian Natural reiterated its capital expenditure and output forecast for 2019. The company expects capex to be around C$3.8 billion in 2019 and envisions total volumes in the band of 1,087,000-1,146, 000 BOE/d. While liquids output is expected between 839,000 Bbl/d and 888,000 Bbl/d, natural gas production is predicted within 1,485-1,545 MMcf/d. Guidance for crude oil and NGL production from North American operations remains within 231,000-251,000 Bbl/d. The company’s thermal in situ oil sands production outlook is estimated within 157,000-172,000 Bbl/d.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.45% due to these changes.

VGM Scores

At this time, Canadian Natural Resources has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Canadian Natural Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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