Canadian Natural Resources Limited (TSX: CNQ): Leading mid-term investment opportunity

Canadian Natural Resources Limited (TSX: CNQ) is one of the largest oil and natural gas producers in Western Canada, with additional operations in the U.K. portion of the North Sea, offshore Africa, and North America. Established in 1989 in Alberta, the company boasts a diverse portfolio that includes light and heavy crude oil, bitumen, synthetic crude oil (SCO), natural gas liquids (NGLs), and natural gas. 

Their natural gas production comes primarily from Northeast British Columbia and Northwest Alberta, particularly the Montney and Deep Basin areas, where they hold extensive undeveloped land. The company’s light crude oil and NGL assets span North America, with additional exploration and development projects in Côte d’Ivoire and South Africa, as well as the U.K. portion of the North Sea. Canadian Natural Resources is also a leading heavy crude oil producer in Canada, with notable assets such as the Pelican Lake polymer flood project. Additionally, the company has significant oil sand operations, with major projects at Primrose, Wolf Lake, Kirby South, Kirby North, and Jackfish, as well as extensive SCO reserves exceeding 7.5 billion barrels. 

Highlights and News Updates 

• On June 13^th, 2024, Crude quality issues on TMX pipe may hamper flows from Canada to US West Coast refiners. 

• On May 31^st, 2024, Canada to assess the toxicity of compound found in oil sands tailings. 

• On May 29^th, 2024, WTI Crude Hits $80, Notches Best Day in Over 2 Months: ‘Peak Oil Demand Still A Decade Away’ 

• On May 16^th, 2024, A wildfire threatening the Canadian oil sands hub of Fort McMurray prompted thousands of people to evacuate the remote northern Alberta city, reviving memories of a destructive blaze eight years ago. 

Key Data

First Quarter 2024 Highlights 

• CNQ reported first-quarter 2024 net earnings per share (EPS) of CA $0.91, down from the prior-year quarter level of CA $1.62. 

• Total revenues of CA $9.422 billion declined from CA $9.548 billion in the year-ago period due to a reduction in product sales. 

• CNQ’s board of directors announced a quarterly cash dividend on its common shares of CA $1.05 per unit on a pre-stock split basis or 52.5 Canadian cents per common share after giving effect to the two-for-one stock split of the common share 

• CNQ distributed strong returns to shareholders, amounting to approximately CA $1.7 billion. This sum consisted of CA $1.1 billion in dividends and CA $0.6 billion from the repurchase and cancellation of roughly 6.7 million common shares at a weighted average price of CA $90.78 per share. 

• Additionally, up to May 1, 2024, the company had distributed a total of approximately CA $3.1 billion directly to shareholders. This distribution included CA $2.2 billion paid out in dividends and CA $0.9 billion used to repurchase and cancel approximately 9.6 million common shares. 

Financials 

The Canadian Natural Resources Limited (CNRL) has shown a notable trend in its financial performance. Total revenue has fluctuated, peaking at CA $49.5 billion in 2022 and declining to CA $40.8 billion by 2023. This decrease was accompanied by a reduction in gross profit from CA $16.3 billion in 2022 to CA $11.8 billion in 2023, reflecting higher costs of revenue and operational expenses.  

Despite these fluctuations, CNRL has maintained a robust operating income, which reached CA $10.5 billion in 2023 after a peak of CA $14.8 billion in 2022. Net income has followed a similar pattern, with earnings of CA $8.2 billion in 2023 compared to CA $10.9 billion in 2022. The company’s earnings per share (EPS) have also varied, influenced by changes in average shares outstanding and fluctuations in net income. Throughout these years, CNRL has managed its financial expenses efficiently, although it faced challenges such as increased operating costs and varying revenue streams. Overall, while experiencing some volatility in revenue and profit, CNRL has maintained strong operational performance, supported by its strategic management of costs and investments in its energy resources portfolio. 

Canadian Natural Resources Limited (CNRL) has shown varying financial performance in the recent quarters of 2023 and early 2024. Total revenue has fluctuated between CA $8.8 billion and CA $11.8 billion, with the first quarter of 2024 reporting CA $9.4 billion. This variability is reflected in gross profit, which ranged from CA $1.95 billion to CA $4.02 billion over the same period, showing peaks and dips corresponding to changes in revenue and costs of revenue, which ranged from CA $6.83 billion to CA $7.74 billion. Operating income followed a similar pattern, ranging from CA $1.67 billion to CA $3.52 billion, with higher figures correlating with stronger gross profits and controlled operating expenses. Net income attributable to common stockholders also varied significantly, from CA $987 million to CA $2.63 billion, impacting diluted earnings per share, which ranged from CA $0.91 to CA $2.43. Despite fluctuations, CNRL has maintained a steady EBITDA, ranging from CA $3.07 billion to CA $5.19 billion, indicating robust operational performance and efficiency in managing its resources amidst changing market conditions. 

The company has actively reduced its total debt burden over the years through various financial strategies, including debt repayments and refinancing activities. This reduction in debt from CA $21.5 billion in 2020 to US $10.8 billion in 2023 highlights the company’s commitment to strengthening its balance sheet and improving financial flexibility. Lower debt levels generally indicate reduced interest expense, lower financial risk, and improved ability to weather economic downturns or operational challenges. 

The decrease in total debt aligns with CNRL’s efforts to optimize its capital structure and allocate resources more efficiently. By lowering its debt, CNRL can allocate more cash flow towards growth initiatives, dividends, or share repurchases, potentially enhancing shareholder value over time. Additionally, reduced debt levels can improve credit ratings, lowering borrowing costs and increasing access to capital markets when needed. The company also has assets worth CA $79.84 billion including cash of CA $1.40 billion. The company also has retained earnings of CA $28.948 billion. 

The company’s EPS is currently at CA $3.74, down by 21.51% compared to last year, which was CA $4.76. 

Forecast 

Right now, the company is trading at CA $47.27. The suggested buying price will be around CA $47.27 – CA $43 with a 1-year projected target of around CA $56.25 and a low estimation of CA $43.60; the average price target will be CA $50.65. 

Technical Analysis 

• The Stock is near its trend line and soon it is expected to bounce up. 

• The analysts are bullish on the stock, and it is a good time to enter as it has been corrected by more than 15%. 

• Right now, the RSI (34.37) indicator is neutral and is below 50 which shows it is a good time to invest in this stock. 

• The stock has the potential to go up by 19%. 

Indicators Summary – Buy 

• The price action analysis of the stock indicates a positive uptrend in the stock. Market sentiments are bullish. 

• Moving averages are giving a buying signal. 

• Analysts are bullish on this stock. 

• Oscillators are neutral. 

Risk factors 

There are a few risk factors in the industry in which the company is operating. 

• Environmental laws and regulations, The Oil and gas industry is one of the major polluted industries. It pollutes the surroundings and causes the release of harmful gasses, how much a company claims to decrease those toxic gasses, it can’t be zero. 

• Rising concern about climate change among people around the world. The government can limit the production. 

• People are shifting towards Renewable Energy for their needs. Such as EVs, electric cookers and stoves, solar energy, etc. 

Stock Recommendation 

Canadian Natural Resources Limited (CNRL) is a strong company due to its diverse asset portfolio and operational efficiency. Operating in Western Canada, the U.K. portion of the North Sea, Offshore Africa, and North America, CNRL produces a variety of commodities, reducing reliance on a single market. The company has effectively managed costs and invested in advanced technologies, maintaining strong profit margins. Financial stability is evident as total debt decreased from CA $21.5 billion in 2020 to CA $10.8 billion in 2023, enhancing cash flow for operations, debt repayment, and shareholder returns. CNRL’s strategic investments in expansion and sustainability, coupled with its adaptability to market conditions, position it well for long-term growth. 

MarketFacts gives a “Buy” rating on the stock at the closing price of CA $47.27 as of June 18^th, 2024. 

CMP (CA) (June 18, 2024)	$47.27
Target Price	$56.25
Recommendation	Buy

The information contained in this Website and the resources available for download through this website is not intended as, and shall not be understood or constructed as, financial advice. It is a general information based out of intensive research and is accurate at our end, providing valuable information. It should be understood as a recommendation that you should consult with a financial professional to address your particular information before making any decision.