The shares of Canadian oil and gas producer Crescent Point (CPG) have rallied more than 100% in price over the past year, driven by a favorable oil and gas market environment. Furthermore, Wall Street analysts see a potential upside in the stock. However, with the COVID-19 omicron variant fostering uncertainties around oil demand, is CPG an ideal addition to one’s portfolio now? Read on.
Headquartered in Calgary, Canada, Crescent Point Energy Corp. (CPG) explores, develops, and produces light and medium crude oil and natural gas reserves in Western Canada and the United States. CPG shares have gained 122.2% in price over the past year and 52% over the past six months to close its last trading session at $6.11. The stock is trading above its 50-day and 200-day moving average, indicating an uptrend.
The stock is up 14.4% already in 2022. Furthermore, Wall Street analysts see a 32.5% upside in the stock.
The Canadian oil producer gained investor attention on rallying oil and natural gas prices amid rebounding demand last year. After a temporary dip in oil and gas prices, geopolitical uncertainty and production shortages pushed oil prices higher, with Brent and WTI surpassing the $80 mark on Jan. 7. In addition, JP Morgan analysts expect oil prices to overshoot $125 a barrel this year, citing capacity-led shortfalls in OPEC+ production. The rebounding oil prices, and analysts’ optimism should fuel CPG’s momentum.
Here is what could shape CPG’s performance in the near term:
Increased Shareholder Returns
CPG declared a $0.045 per share first quarter 2022 dividend, payable on April 1, 2022, to shareholders of record on March 15, 2022, representing a 50% increase from its fourth-quarter 2021 dividend of $0.03 per share, which was to be paid on Jan. 4, 2022. This equates to a dividend payment of $0.18 per share on an annualized basis. Furthermore, the company also plans to allocate up to $100 million to share repurchases over the coming six months. Its leverage ratio is expected to be at or below 1.0 times net debt to adjusted funds flow in early 2022.
Favorable market trends helped CPG to strengthen its balance sheet position over the past year, and the company now expects to generate excess cash flow of approximately $750 million -$1billion this year, and to create additional shareholder value given the current oil price environment. “We have established a disciplined budget for 2022 and expect to generate strong returns and significant excess cash flow for our shareholders,” said Craig Bryksa, President and CEO of Crescent Point.
CPG’s 90.31% net income margin is 4,199.3% higher than the 2.10 industry average, while its EBIT margin of 120.01% is 1,380.4% higher than the industry average of 8.11%.
Furthermore, CPG’s ROE, ROA, and ROTC of 53.15%, 23.74%, and 27.63%, respectively, compare with the 2.85%, 1.04%, and 3.52% industry averages.
Kaybob Duvernay Asset Enhancing CPG’s Operations
Last year CPG closed its accretive acquisition of Shell Canada Energy’s Kaybob Duvernay assets in Alberta. CPG expects to generate annual average production of 133,000 to 137,000 boe/d, representing a 131,000 to 135,000 boe/d increase from its previous guidance. This reflects the positive impact of Kaybob Duvernay’s assets in boosting CPG’s operating performance. Also, CPG reported that Kaybob Duvernay operations resulted in additional well cost reductions, with current well costs down about 15% from estimated costs. The company expects this asset to generate approximately $275 – $350 million of net operating income, excluding capital expenditures, this year at $65/bbl to $75/bbl WTI, and production of approximately 37,000 boe/d on average.
In terms of forward P/E, CPG is currently trading at 1.87x, which is 86.7% lower than the 14.10 industry average. Also, its 4.41 forward EV/EBITDA ratio is 45.5% lower than the 8.09 industry average. Its 3.00x Price/Cash Flow is 49% lower than the 5.88x industry average.
POWR Ratings Reflect Growth Prospects
CPG 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 B for Value, consistent with its lower-than-industry valuation multiples.
CPG has an A grade for Momentum. This is justified because the stock is currently trading above its 50-day and 200-day moving average.
Of 48 stocks in the Foreign Oil & Gas industry, CPG is ranked #15.
Beyond what I have stated above, one can also view CPG’s grades for Sentiment, Growth, Quality, and Stability here.
View the top-rated stocks in the A-rated Foreign Oil & Gas industry here.
Investors’ interest in CPG is evident from the substantial gains over the past year. The company plans to increase shareholder returns this year. Street analysts expect CPG’s EPS to increase 177.2% per annum over the next five years. Also, given the company’s high-profit margins and favorable oil and gas price environment, we think the stock could be an ideal investment.
How Does Crescent Point Energy Corp. (CPG) Stack Up Against its Peers?
CPG has an overall POWR Rating of B. However, one could also check out these other stocks within the Foreign Oil & Gas industry with an A (Strong Buy) rating: LUKOIL PJSC (LUKOY), MOL Hungarian Oil and Gas PLC (MGYOY), and Parex Resources Inc. (PARXF).
CPG shares were trading at $6.17 per share on Monday morning, up $0.06 (+0.98%). Year-to-date, CPG has gained 15.54%, versus a -2.84% 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.
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