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Why Is Canadian Natural Resources (CNQ) Up 2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Canadian Natural Resources (CNQ). Shares have added about 2% in that time frame, underperforming 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 catalysts.

Canadian Natural Q2 Loss Narrower Than Expected, Revenues Top

Canadian Natural Resources Limited reported second-quarter 2020 adjusted loss per share of 47 cents, narrower than the Zacks Consensus Estimate of a loss of 56 cents, attributable to increased total production, lower costs and higher natural gas price realizations. However, in the year-ago period, the company posted an adjusted profit of 65 cents per share. The year-over-year underperformance is due to lower weak crude oil and NGLs price realizations.

Total revenues of $2.07 billion surpassed the Zacks Consensus Estimate of $1.98 billion. However, the top line declined from second-quarter 2019 revenues of $4.16 billion.

During the quarter under review, the company, which is committed to adding shareholder value, returned C$502 million via dividends.

Canadian Natural declared a quarterly dividend of 42.5 Canadian cents a share, payable Oct 5, 2020 to its shareholders of record as of Sep18, 2020.

Production & Prices

Canadian Natural reported quarterly production of 1,165,487 barrels of oil equivalent per day (BOE/d), up 13.6% from the prior-year quarter. Oil and natural gas liquids (NGLs) output (accounting for more than 79.1% of total volumes) increased to 921,895 barrels per day (Bbl/d) from 770,409Bbl/d a year ago. Crude oil and NGLs production from operations in North America including synthetic crude oil production of 464,318Bbl/d and bitumen output of 212,807Bbl/d totaled 677,125Bbl/d, comparing favorably with the year-ago quarter’s 484,099Bbl/d owing to high utilization rates and operational enhancements at both Horizon and Athabasca Oil Sands projects.

Natural gas volumes recorded a 4.56% year-over-year decline from 1,532 million cubic feet per day (MMcf/d) to 1,462MMcf/d in the quarter under review. Production in North America summed 1,431MMcf/d compared with 1,482MMcf/d in the prior year.

Canadian Natural’s realized natural gas price was C$2.03 per thousand cubic feet compared with the year-ago level of C$1.98. Realized oil and NGLs price plummeted 70.1% to C$18.97 per barrel from C$63.45 in the second quarter of 2019.

Costs & Capital Expenditure

Total expenses incurred in the quarter were C$3,479 million, lower than C$4,012 million recorded a year ago. Lowered transportation costs and production expenses along with higher foreign exchange gain reduced the overall costs. Particularly, Canadian Natural has been focusing on disciplined cost management owing to which the company could minimize its Oil Sands Mining and Upgrading operating expenses from C$24.17 per barrel a year ago to a record low of C$17.74 in the quarter under discussion.  

In the reported quarter, capital expenditure came in at C$421 million.

Balance Sheet

As of Jun 30, the company had C$233 million in cash and cash equivalents, and a long-term debt of C$21,177 million, representing total debt to total capital of 39.6%.

2020 Guidance

Canadian Natural reiterates its 2020 capex to be C$2.7 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 99.24% due to these changes.

VGM Scores

Currently, Canadian Natural Resources has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 these revisions 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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