Why CNQ stock looks like a good buy right now: Canadian Natural Resources Ltd. (TSX:CNQ)?
Canadian Natural Resources limited (TSX:CNQ) is one of the largest oil and natural gas producers in western Canada, supplemented by operations in the U.K. portion of the North Sea, Offshore Africa and North America. It was established in 1989 at Alberta.
The company’s portfolio includes light crude oil and heavy crude oil, bitumen, synthetic crude oil(SCO), natural gas liquids(NGLs), and natural gas.
The products include: first, natural gas, they have one of the largest undeveloped land bases in the relatively undeveloped natural gas resources area in Northeast British Columbia and Northwest Alberta, including the Montney and Deep Basin.
Second, light crude oil and natural gas liquids. They have diverse portfolio of light crude oil and natural gas liquids in North America. They have development and exploration opportunities in Côte d’Ivoire Offshore Africa and also have 20% interest in blocks 11B/12B Offshore South Africa. Development opportunities in the U.K. portion of the North Sea.
Third, heavy crude oil. They are one of the largest heavy crude oil producers in Canada with significant opportunities in primary heavy crude oil and at their world class polymer flood asset at Pelican Lake.
Fourth, Oil Sand(bitumen, SCO).There is tremendous development opportunities within the company’s thermal in situ oil asset portfolio, incremental to their operating asset at the Primrose, Wolf Lake, Kirby South, Kirby North and Jackfish projects. They have world class oil sands mining and upgrading assets with over 7.5 billion barrels of company’s gross proved plus probable SCO reserves.
Highlights and News Updates
- On November 30th, 2022, Canadian Natural Announced its 2023 budget and new GHG emissions reduction target.
- On November 3rd, 2022, Company announced its third quarter results and announced quarterly dividend.
- On August 4th, 2022, Company announced second quarter results and quarterly dividend and also announced a special dividend for common shareholder.
- On May 6th, 2022, Company reports voting results at annual and special meeting.
Key Data
Third Quarter 2022 Highlights
- Revenue Stood at CA $10.46 Bn an increase of 35.6% from last year’s 3rd quarter.
- Net Profit stood at CA $2.81 Bn an increase of 27.72% from last year’s 3rd quarter. EPS was at CA $2.52 per share.
- Production of natural gas was highest compared to other products.
- Majority of the revenue was seen from North America CA $5.94 Bn.
- Long term debt was at CA $12.34 Bn.
Financials
Revenue and profit of the company are quite stable. In 2020 revenue took a plunge and profit became negative, this was due to covid-19, lower production due to lockdown and other expenses such foreign currency fluctuation, loss on investment. But in 2021 company recovered..
Company is reducing its debt because, it wants to increase the free cash flow of the company. The total debt as on September 30th, 2022, was CA $11.58 Bn compared to CA $13.95 Bn in the year 2021. 13.20% debt is taken in Canadian Dollar denomination, and 86.80% debt is taken in U.S. Dollar denomination.
Quarterly income of the company is stable, and they are also generating good amount of profit though which they can pay their debt and other expenses easily.
Earnings
Right now, EPS of the company is at CA $6.49 which is better than the last year and by seeing quarterly result there is a high chance that it can go up. The EPS of the company was in uptrend since 2017 but in 2020 it plunged and came to negative, again in 2021 it recovered.
In future also EPS can go up because of their policy in which they want to increase their free cash flow by reducing their debt.
Forecast
Right now, the company is trading at CA $75.54. The suggested buying price will be around CA $75 with 1-year projected target around CA $110 and a low estimation will be CA $49; average price target will be CA $105.
Company has decided to purchase its share back once the total debt of the company comes under CA $15 Bn, and right now debt is around CA $11.58 Bn shown in third quarter result. Hence, our analysis says that in future both dividend and stock price of the company can increase. The earning of the company will also increase because of the growing demand of the energy around the world which will strengthen the price of their products. The operating expenses of the company is very low which will help them to keep majority of the profit which can also increase EPS and dividend.
The balance sheet of the company is at good position and it will grow more because of their policy which states that once the debt of the company falls under CA $15 Bn they will divert 50% of free cash flow towards its balance sheet.
Technical Analysis
- The Stock is near its trend line and soon it is expected to bounce up.
- It has made a bullish pennant pattern which is expected to be broke by the stock for further up move.
- Right now, RSI (37.43) indicator is neutral and is below 50 which show its is good time to invest in this stock.
- The stock has potential to go up by 45%.
- The price action analysis of the stock is indicating a positive uptrend in the stock. Market sentiments are bullish.
- Moving averages are giving buying signal.
- Analysts are bullish on this stock.
- Oscillators are neutral.
Risk factors
There are few risk factors with the industry in which company is operating.
- Environmental laws and regulations, Oil and gas industry is one of the major polluted industries. It pollutes the surrounding and causes release of harmful gasses, how much a company claim to decrease those toxic gasses, it can’t be zero.
- Rising concern of climate change among people around the world. Government can limit the production.
- People are shifting to Renewable Energy for their needs. Such as EVs, electric cooker and stove, solar energy etc.
Stock Recommendation
The capitalization of company is around CA $83.08 Billion. The intrinsic value of the stock is approximately CA $170, but it is currently trading at around CA $75. Canadian Natural Resources limited is currently undervalued; excellent time to invest in the stock will be around CA $75-$80. With a positive outlook on the future.
MarketFacts gives a “Buy” rating on the stock at the closing price of CA $75.54 as of February 23rd, 2023.
| CMP(CAD) (February 23, 2023) | C$ 75.54 |
| Target Price | C$ 82.50 |
| Recommendation | Buy |
