Canadian oil and gas company Cenovus Energy Inc. (CVE) topped first-quarter profit estimates driven by higher production and increased refinery throughput. Let’s look at its fundamentals to determine if this stock is the key to powering up your investment portfolio in June.

In the first quarter that ended March 31, 2024, CVE’s total upstream production rose 2.8% year-over-year to 800,900 barrels of oil equivalent per day (boepd), reflecting scheduled maintenance in the Atlantic region. The company’s quarterly refining throughput reached a record 655,200 barrels per day (bpd), with significant improvements in U.S. refining operations.

CVE’s revenues increased 9.3% year-over-year to C$13.40 billion ($9.73 billion), while its earnings before income tax improved 162.1% from the year-ago value to C$1.55 billion ($1.13 billion). Net earnings amounted to C$1.18 billion ($854.19 million) and C$0.62 per share, reflecting increases of 84.9% and 93.5%, respectively, from the same period last year.

CVE’s cash inflows from operating activities amounted to C$1.93 billion ($1.39 billion), marking a significant turnaround from the C$286 million ($207.74 million) outflow in the prior year’s quarter. Adjusted funds flow increased by 60.7% year-over-year to C$2.24 billion ($1.63 billion), while free funds flow soared 310.2% from the year-ago value to C$1.21 billion ($875.98 million).

Moreover, the company comprehensively surpassed Wall Street’s EPS and revenue estimates. For the first quarter, CVE’s earnings per share was 39.5% above the consensus estimate, and its revenue was 15.7% higher than the analysts’ estimates.

Reflecting this strong financial health, on May 1, the company’s Board of Directors announced a 29% increase in the base dividend to C$0.180 per common share, payable on June 28, 2024. Additionally, a variable dividend of C$0.135 per share was paid on May 31. Consistent with Cenovus’s financial framework, this base dividend is sustainably supported by funds flow generation even at the lower end of the commodity price cycle.

CVE’s annual dividend of $0.53 translates to a yield of 2.82% at the current price, compared to the four-year average dividend yield of 2.20%. Its dividend payments have grown at a robust CAGR of 209.9% over the past three years and at 22.4% CAGR over the past five years.

The stock of the oil company has gained 18.3% over the past six months and 14.1% year-to-date, closing the last trading session at $18.91.

Now, let’s discuss several other factors that could influence CVE’s performance in the upcoming months:

Optimistic Analyst Estimates

Street expects CVE’s revenue for the fiscal second quarter (ending June 2024) to increase 14.5% year-over-year to $11.13 billion. Its EPS estimate of $0.63 for the ongoing quarter indicates a 120.1% improvement year-over-year.

Looking ahead, analysts anticipate a 10.5% increase in revenue for the fiscal year 2024 (ending December 31) to reach $42.84 billion. Similarly, EPS for the current year is expected to experience an impressive growth of 31.7% from the prior year, settling at $2.11.

Sound Historical Growth

CVE’s revenue has increased at CAGRs of 41.4% and 20.2% over the past three and five years, respectively. Over the past three years, its levered FCF improved at a CAGR of 191.1%. Moreover, the company’s EBITDA grew at a 57.9% CAGR over the same time frame.

Discounted Valuation

In terms of forward non-GAAP PEG, CVE is trading at 0.37x, 75.3% lower than the industry average of 1.52x. Similarly, the stock’s forward non-GAAP P/E and EV/EBITDA multiples of 8.98 and 4.75 are 18.3% and 17.9% lower than the industry averages of 10.99x and 5.80x, respectively.

In addition, the stock’s 0.96x forward EV/Sales is 51.8% lower than the 1.98x industry average. Also, its forward Price/Sales multiple of 0.82 compares to the industry average of 1.40.

POWR Ratings Exhibit Solid Prospects

CVE’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CVE boasts a B grade for Value, which is in sync with its lower-than-industry valuation. Additionally, it also earned a B for Growth and Sentiment, reflecting its solid financial performance in the last reported quarter and optimistic analyst estimates.

Within the Energy – Oil & Gas industry, CVE is ranked #2 out of the 80 stocks.

Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Quality. Get all CVE ratings here.

Bottom Line

In addition to its impressive financial performance, the company has highlighted the transformative impact of the start-up of the Trans Mountain pipeline expansion (TMX) on Cenovus Energy. TMX, poised to nearly triple the oil flow to Canada’s west coast to 890,000 barrels per day, stands as a transformative force in opening new global markets for the country’s producers.

The commercial launch on May 1, following final regulatory approvals, symbolizes a milestone for the project and Canada’s oil industry. For Canada, the fourth-largest oil producer globally, the expanded pipeline capacity is anticipated to elevate crude prices, bolster national gross domestic product, and facilitate expanded access to lucrative Asian oil markets.

Moreover, with TMX and the existing pipeline now operational for crude oil transportation, CVE gained access to expanded loading capabilities from all three berths. Trans Mountain, in a press release, highlighted that 70% of the expanded pipeline is already full by volume, highlighting the swift uptake and strong demand for increased transportation capacity.

With that in mind, CVE’s strong financial performance, enhanced dividend yield, strategic market position, and commitment to shareholder value should make it an attractive option for investors looking to power up their portfolios in June.

How Does Cenovus Energy Inc. (CVE) Stack Up Against Its Peers?

While CVE has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Energy – Oil & Gas industry: Secure Energy Services Inc. (SECYF), PrimeEnergy Resources Corporation (PNRG), Shell plc (SHEL), and Energy Transfer LP (ET), carrying A (Strong Buy) or B (Buy) ratings. To explore more Energy – Oil & Gas stocks, click here.

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CVE shares were trading at $19.27 per share on Monday afternoon, up $0.36 (+1.90%). Year-to-date, CVE has gained 16.95%, versus a 12.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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