Raymond James analyst Michael Barth resumed coverage of five Canadian senior oil and gas stocks on Wednesday.
“While we view these as some of the best businesses in Canadian energy, we believe that the stocks are in the ballpark of fairly valued on strip pricing. As such, we launch with four Market Perform ratings and just one Outperform, and generally see better value elsewhere in Canadian energy,” he noted.
The lone company given an “outperform” recommendation is Cenovus Energy Inc. with a $33 target, which is 33 cents below the average on the Street.
“We use the term ‘top pick’ loosely, but that spot is reserved for CVE, where our analysis suggests that the current stock price reflects an embedded long-term WTI price of US$60/bbl,” he said. “That’s lower than the other four businesses in our large cap coverage universe, and the only embedded price below long-term strip. In our view, there are a number of positive idiosyncratic changes happening at CVE that the market doesn’t appear to fully appreciate. To be clear, CVE is far from what we’d consider a pound-the-table idea. Even still, with the highest relative production growth, improvements being made in the refining business, more than 30 years of 2P reserves, and reasonably attractive free cash flow yield, we think CVE offers the best value in this space. In the game of inches, CVE inches ahead.”