Ovintiv Inc. (OVV) is an independent oil and gas producer that explores and churns out oil and natural gas from diverse assets in the United States and Canada. Due to the buyout of Newfield Exploration in 2019, Ovintiv has become one of the more significant upstream players in the North American E&P landscape.
Only a few years ago, natural gas made up about 95% of OVV’s output. However, the company has successfully repositioned its asset base and transitioned to crude, which is more profitable. A considerable portion of the firm’s output comes from three positions in North America.
This includes Montney in British Columbia and Alberta, Anadarko Basin in Oklahoma, and the Permian Basin in New Mexico. Its portfolio also includes acreage in North Dakota’s Bakken Shale, plus Eagle Ford in Texas. These are some of the most cost-advantaged shales in North America, with substantial opportunities for profitable drilling at current commodity prices.
Even before it acquired Newfield Exploration, OVV already had a significant asset base. But since the purchase, the company has a greater scale and is seeing cost synergies. In fact, the transaction added more than 385,000 net acres in the STACK and SCOOP areas of the Anadarko Basin.
The company also has a premium inventory of high-quality, liquids-rich locations with drilled but uncompleted wells. These can be brought into production quickly. Plus, it has a vast liquidity cushion and can endure low commodity prices for a long time if needed.
Its cash flows also have downside protection from oil and gas hedges. The firm is hedging a solid portion of its 2021 oil and natural gas production at attractive prices. These hedges should help soften the blow if there is a meltdown in commodity prices.
Plus, OVV has been bringing down its costs. It has been cutting expenses and targets $1.8 billion of cost savings between 2021 and 2025. Cutting its expenses should boost its free cash flow generation. The company also reported better than expected results in its most recent quarter.
Adjusted earnings per share came in at $1.11, not only beating estimates but much higher than a loss of 43 cents from the year ago. This growth was due to higher commodity price realization and the company’s cost-cutting initiatives.
Its total second-quarter production was 554,600 barrels of oil equivalent per day, more than the 536,600 in the prior year. Its realized oil price increased to $51.27 per barrel from $39.7 in the second quarter of last year.
OVV has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Growth Grade of B as sales are expected to rise 52.5% year over year in the current quarter and 19.2% for the year. Earnings are forecasted to grow a whopping 5,200% year over year in the current quarter and 1,328.6% for the year.
OVV also has a Value Grade of B, which isn’t surprising, with a trailing P/E of 3.13 and a forward P/E of 3.97. These valuation figures are extremely attractive. Plus, the company is undervalued by as much as 82.8% based on analyst price targets.
We also provide Momentum, Stability, Sentiment, and Quality grades for OVV, which you can find here. OVV is ranked #17 in the A-rated Foreign Oil & Gas industry. For more top stocks in this highly rated industry, click here.
Compared to some of its bigger peers, OVV certainly looks strong. Take Total S.A. (TOT), for instance. The company’s Neutral rating is underwhelming compared to OVV’s Buy rating as its Value Grade of C. TOT is also ranked much lower in the same industry.
Another example is Enbridge Inc (ENB). ENB is not only rated Neutral, but it has a Growth Grade of D, which is very concerning. As is its Value Grade of C. Plus, the stock is also ranked well below OVV in the Foreign Oil & Gas industry. OVV is clearly the better stock.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years.
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OVV shares were unchanged in after-hours trading Friday. Year-to-date, OVV has gained 106.11%, versus a 18.83% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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