SCRUBBING DOWN THE 2026 OUTLOOK –
RATE OF CHANGE FAVOURS CENOVUS
THE TD COWEN INSIGHT
Cenovus and Suncor have both issued multi-year outlooks. CVE has a 5-year plan through 2028 (note), and last week SU issued a 3-year plan through 2026 (Business Update note). One key investor question we are getting is which of CVE and SU (the two 'value' Integrateds) offers the highest rate of change through 2026, and therefore the most multiple compression potential.
In our view, the question of: 1) 2024E-26E rate of change and 2) 2026E relative valuation is all-the-more topical given SU's significant outperformance vs. CVE on a TTM basis (SU shares +38% vs. CVE +24%). In our view, this is largely tied to new SU leadership and much stronger recent execution. Regardless, this has surprised many investors.
While 2026E Street consensus would normally answer these questions, there are currently few estimates with significant variability. However, this should change over the next 6-9 months as the sell-side introduces 2026E estimates. We also have not published 2026E estimates, so Figure 1 estimates are instead largely based on 'face-value' corporate guidance and strip commodity prices, and contingent on delivering on operational/financial targets.
To answer the two questions above, we 1) calculated two-year CAGRs (2024E-26E) on key performance indicators such as production per share, capex, CFPS, and FCFPS, and 2) estimated who benefits most from valuation multiple compression if these projections prove accurate.
Our findings, which capture buyback activity, are summarized in Figure 1 and below:
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1 CVE production per share could grow at a 14% CAGR (2024E-26E) vs. SU at +10% (CNQ +11%, IMO +10%).
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2 Similarly, CVE capex could shrink at an 11% CAGR (2024E-26E) vs. SU at -7% (CNQ +1%, IMO -2%).
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3 Given our expectations of aggressive buyback activity due to discounted valuations, we see CVE strip FCFPS growing at an 18% CAGR (2024E-26E) vs. SU at +15% (CNQ +8%, IMO -1%).
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4 CVE and SU remain the Integrated 'value' names and both should benefit from material multiple compression in 2026E, but compression is more significant for CVE.
a. CVE gets quite a bit more inexpensive with its strip 2026E FCF yield increasing to 19% from 15% (+4%) in 2024E. For SU, it increases to 17% from 14% (+3%).
CVE (BUY, current price $28.30, $32 target) remains our top Integrated pick, largely on
the basis of the findings above. However, we acknowledge that SU (HOLD, current price $54.47, $57 target) is on a much better track with solid momentum, backstopped by strong leadership, and that CNQ/IMO estimates could change as multi-year outlooks are updated.