Headquartered in Calgary, Canada, Cenovus Energy Inc. (CVE) develops, produces, and markets crude oil, natural gas liquids, and natural gas in Canada, the United States, and the Asia Pacific region. The company operates through Oil Sands; Conventional; Offshore; Canadian Manufacturing; U.S. Manufacturing; and Retail segments. CVE shares have gained 137.8% over the past year and 121.6% over the past nine months to close the last trading session at $18.48. The stock has gained 50.5% year-to-date, driven by the geopolitical issues that have exacerbated concerns in an already-tight oil market, pushing the crude prices to multi-year highs.

Moreover, CVE shareholders have a reason to smile with the company reporting a more than seven-fold jump in quarterly profit that surpassed analyst estimates and approved tripling the base dividend starting with the second quarter of 2022. CVE also targets to return 50% of quarterly excess free funds flow to shareholders when reported net debt is less than $9 billion. Additionally, CVE targets to return 100% of that quarter’s excess free funds flow to shareholders through share buybacks and/or variable dividends when reported net debt is at the $4 billion floor.

“We have built this business with a focus on free funds flow generation, and we have made rapid progress on the balance sheet,” Cenovus chief executive Alex Pourbaix said on a conference call.

Here’s what could shape CVE’s performance in the near term:

Sound Financials

For the three months ended March 31, 2022, CVE’s revenues increased 74.3% year-over-year to Can$16.20 billion ($12.60 billion), driven by higher average realized sales prices for the company’s products across the Upstream and Downstream businesses. Net earnings came in at Can$1.63 billion ($1.27 billion), reflecting an increase of 638.6% from its year-ago value, while its EPS rose 690% year-over-year to Can$0.79. The company’s cash and cash equivalents balance for the period stood at Can$3.40 billion ($2.64 billion), up 289.3% year-over-year.

Bullish Sentiments

Analysts expect CVE’s rate of growth to accelerate meaningfully, forecasting 59% annualized revenue growth to the end of 2022, noticeably faster than its historical growth of 16% p.a. over the past five years. Moreover, CVE is expected to grow faster than its industry peers, which are forecasted to grow their revenue by 7.7% annually. This demonstrates CVE’s solid positioning in the industry and improving business conditions.

CVE’s revenue is expected to grow 107.8% year-over-year in the quarter ending June 2022, 76.6% in the following quarter ending September 2022, and 106.7% in the quarter ending December 2022. Also, Street expects CVE’s EPS to come in at $0.65 in the ongoing quarter, indicating an increase of 546.2% year-over-year, while it is expected to grow 124.8% in the next quarter.

Of the 11 Wall Street analysts that rated CVE, ten have rated it Buy, and one has rated its Hold.

Discounted Valuation

In terms of forward P/E, CVE is currently trading at 6.49x, 31.6% lower than the industry average of 9.49x. Also, its forward EV/Sales ratio of 0.89 is 54.4% lower than the industry average of 1.95, while its forward Price/Sales multiple of 0.71 is 49% lower than the industry average of 1.39. CVE’s forward non-GAAP PEG of 0.09x is 88.6% lower than the industry average.

POWR Ratings Show Promise

CVE has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of A for Momentum. This is justified as the stock is currently trading above its 50-day and 200-day moving averages.

CVE has a B grade for Value, consistent with its lower-than-industry valuation.

Of the 97 stocks in the B-rated Energy – Oil & Gas industry, CVE is ranked #28.

Beyond what I have stated above, one can also view CVE’s grades for Quality, Sentiment, Stability, and Growth here.

View the top-rated stocks in the Energy – Oil & Gas industry here.

Bottom Line

CVE garnered massive investors’ attention amid the rallying energy prices. And Wall Street analysts see a more than 20% upside potential in the stock. Moreover, with the oil benchmarks above the $100 mark, boosting the energy stocks, and analysts expecting CVE’s sales to perform better than the wider market, the stock could be worth adding to your portfolio now.

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

CVE has an overall POWR Rating of B. However, one could also check out these other stocks within the Energy – Oil & Gas industry with an A (Strong Buy) rating: Unit Corp. (UNTC) and Adams Resources & Energy, Inc. (AE).

CVE shares fell $0.42 (-2.27%) in premarket trading Monday. Year-to-date, CVE has gained 47.32%, versus a -13.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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