Here's Why Hold Strategy is Apt for Cenovus (CVE) Stock Now
Cenovus Energy Inc. CVE has witnessed upward earnings estimate revisions for 2023 and 2024 in the past 30 days.
The Zacks Consensus Estimate for the Zacks Rank #3 (Hold) company’s 2023 and 2024 earnings are pegged at $1.59 and $2.14 per share, respectively.
Factors Favoring the Stock
Global crude oil prices have been substantially higher over the past year. The favorable oil price scenario is a boon for Cenovus’ upstream operations.
Between 2020 and 2024, the company expects compound annual production growth of 2-3%. With disciplined capital investment and production growth, the company expects consistent growth in earnings and fund flows for the period.
Like upstream businesses, Cenovus benefits from its strong refinery utilization. The company expects downstream throughput volumes of 580,000-610,000 barrels per day for 2023, indicating a significant increase from the 2022 reported level.
CVE continues to reduce debt through free fund flow generation and asset divestments. Cenovus reduced its net debt by more than 50% in 2022. The company expects to continue progressing on debt reduction throughout 2023. Also, the Canada-based energy player increased its base dividend 33% to 56 cents per share annually.
In 2022, Cenovus generated $7,270 million in free fund flow, reflecting a major improvement from the year-ago free fund flow of $4,685 million. Cenovus intends to allocate some of the free funds to increasing shareholder returns.
Cenovus’ commitment to the energy transition is commendable. The company plans to reduce absolute greenhouse gas emissions by 35% by 2035 end. CVE commits to reaching net-zero emissions by 2050.
Risks
Cenovus discontinued its practice of crude price hedging as it realized steep losses on its existing risk management program. While this policy helps to capture upside exposure to the near to medium-term rebalancing of oil markets, the lack of any hedge protection makes Cenovus more exposed to potential weakness in crude prices than some of its peers.
Key Picks
Investors interested in the energy sector might look at the following companies that presently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Crestwood Equity Partners LP CEQP projects an adjusted EBITDA of $780-$860 million for this year.
In the past three months, Crestwood’s shares have risen 3.9%. The Zacks Consensus Estimate for CEQP’s 2023 and 2024 earnings per share is pegged at $1.55 and $1.85, respectively.
Dril-Quip Inc. DRQ is valued at more than $930 million. In the past three months, its shares have risen 17%.
The Zacks Consensus Estimate for Dril-Quip’s 2023 and 2024 earnings per share is pegged at 34 cents and 85 cents, respectively.
Evolution Petroleum EPM is worth $320 million. In the past three months, its shares have risen 24.9%.
The Zacks Consensus Estimate for EPM’s 2023 and 2024 earnings per share is pegged at $1.11 and $1.08, respectively.
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Cenovus Energy Inc (CVE) : Free Stock Analysis Report
Evolution Petroleum Corporation, Inc. (EPM) : Free Stock Analysis Report
Crestwood Equity Partners LP (CEQP) : Free Stock Analysis Report
