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Why Is Cenovus (CVE) Down 18.9% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Cenovus Energy (CVE). Shares have lost about 18.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cenovus due for a breakout? 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.

Cenovus Lags Q1 Earnings Estimates, Revenues Surge

Cenovus Energyreported first-quarter 2019 earnings per share of 5 cents, missing the Zacks Consensus Estimate of 13 cents. In the prior-year quarter, the company had incurred a loss of 48 cents.

Meanwhile, quarterly revenues of $3,908 million surpassed the Zacks Consensus Estimate of $3,751 million and rose from the year-ago quarter’s figure of $3,722 million.

Strong contributions from the Refining and Marketing segment primarily supported the leading integrated energy firm’s quarterly results. This was however partially offset by lower oil sand production volumes and the reduced contributions from the Deep Basin business unit.

Operational Performance

Quarterly revenues at the Oil Sands unit declined to C$2,250 million from C$2,348 million in the first quarter of 2018, courtesy of lower production of oil sands. The company recorded daily oil sand production of 342,980 barrels in the March quarter of 2019, down 4.6% year over year.

However, operating margin at the segment surged to C$841 million from the year-ago quarter’s C$106 million, thanks to higher Western Canadian Select (WCS) prices.

Revenues at the Deep Basin unit fell to C$206 million from C$224 million in the year-ago quarter. Moreover, the segment’s operating margin came in at C$94 million, down from C$99 million in the year-ago quarter.

At the Refining and Marketing segment, the company generated revenues worth C$2,689 million, up from C$2,232 million a year ago. Moreover, the unit’s operating margin was recorded at C$304 million against the year-ago quarter’s loss of C$48 million.

Expenses

Transportation and blending expenses in the reported quarter fell to C$1,159 million from C$1,514 million in the year-ago quarter.

Balance Sheet & Capital Expenditures

As of Mar 31, 2019, the Canadian energy player had cash and cash equivalents of C$244 million and total long-term debt of C$7,715 million. The total debt-to-capitalization ratio was approximately 32.5%. The company incurred capital expenditure of C$321 million in the quarter under review.

Outlook

Through 2019, the company expects total oil equivalent daily production between 445 MBOE/D and 475 MBOE/D. In 2019, the company is planning to spend between C$785 million and C$930 million on upstream operations. Of this, about C$425-C$475 million will be allocated toward the Christina Lake oil sands operations and C$250-C$300 million for Foster Creek.

For refining operations, the company is likely to invest between C$225 million and C$250 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 23% due to these changes.

VGM Scores

At this time, Cenovus has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 these revisions looks promising. Notably, Cenovus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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