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Why Is Canadian Natural Resources (CNQ) Down 2.1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Canadian Natural Resources (CNQ). Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

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

Canadian Resources Posts In Line Q2 Earnings, Down Y/Y

Canadian Natural reported second-quarter 2019 adjusted earnings per share of 65 cents, in line with the Zacks Consensus Estimate on higher commodity price realizations. Meanwhile, the bottom line was lower than the prior-year earnings of 70 cents a share as production fell.

Moreover, total revenues of $4,158 million missed the Zacks Consensus Estimate of $4,359 million. Also, the top line declined from second-quarter 2018 revenues of $4,613 million.

Despite a year-over-year decrease in revenues and earnings, the company’s second-quarter results offered something positive to buoy long-term investors’ optimism as free cash flow totaled $1,295 million after capital expenditure and dividend payments.

Production & Prices

Canadian Natural reported quarterly production of 1,025,800 barrels of oil equivalent per day (BOE/d), down by 2.3% from the prior-year quarter. Oil and natural gas liquids (NGLs) output (accounting for more than 75% of total volumes) decreased to 770,409 barrels per day (Bbl/d) from 793,899 Bbl/d a year ago. Crude oil and NGLs production from operations in North America came in at 719,165 Bbl/d, lower than the year-ago quarter’s 751,242 Bbl/d due to the implementation of the company’s curtailment optimization strategy and the wildfire-induced shut-ins of Alberta.

Natural gas volumes recorded a marginal year-over-year decline from 1,539 million cubic feet per day (MMcf/d) to 1,532 MMcf/d in the quarter under review. Production in North America totaled 1,482 MMcf/d compared with 1,485 MMcf/d in the prior year.

Canadian Natural’s realized natural gas price was C$1.98 per thousand cubic feet compared with the year-ago level of C$1.95. Realized oil and NGLs price increased 3.8% to C$63.45 per barrel from C$61.14 in the second quarter of 2018, courtesy of the narrowing crude oil differentials.

Expenses & Capex

Total expenses incurred in the quarter were C$4,012 million, lower than C$4,550 million recorded a year ago. Lower production and transportation expenses coupled with foreign exchange gains reduced the overall costs. In the reported quarter, capital expenditure summed C$908 million excluding the C$3.8-billion buyout of Devon’s Canadian business.

Dividend & Share Repurchase

The company, which is committed to adding shareholder value, returned C$449 million and C$391 million via dividends and stock buybacks, respectively.

Canadian Natural declared a dividend of 37.5 Canadian cents a share, payable Oct 1 to its shareholders of record as of Sep 13, 2019.

Balance Sheet

As of Jun 30, the company had C$398 million in cash and cash equivalents, and a long-term debt of C$19,543 million, representing a debt-to-capitalization ratio of approximately 36.3%.

Guidance

Canadian Natural revised its capital expenditure and output forecast for 2019. The company expects capex to be around C$3.8 billion in 2019, up $100 million from the previous forecast as it looks to maintain the acquired properties from Devon Energy. It envisions liquids output in the band of 839,000-888,000 Bbl/d while natural gas output is predicted within 1,485-1,545 MMcf/d. Guidance for crude oil and NGL production from North American operations has been raised to include the Devon acquisition and is now projected within 231,000-251,000 Bbl/d. The company’s thermal in situ oil sands production outlook is also lifted and is estimated within 157,000-172,000 Bbl/d.

Third-quarter 2019 liquids production is anticipated within 897,000-939,000 Bbl/d and natural gas output, in the band of 1,440-1,460 MMcf/d.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 5.95% due to these changes.

VGM Scores

Currently, Canadian Natural Resources has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. 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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