In a separate research note, Mr. MacCulloch (Desjardins) also reduced his expectations for Cenovus Energy Inc. in response to its Thursday’s guidance release.
“Although headline metrics from the 2024 guidance release were slightly disappointing, CVE outperformed its large-cap peers [Thursday], suggesting the market is starting to recognize the valuation disconnect at hand,” he said. “Although our 2024 CFPS estimate decreased by 6 per cent, primarily driven by reduced upstream production and downstream throughputs which were further exacerbated by increased opex assumptions, our 2025 CFPS estimate was relatively stable (down 2 per cent). More importantly, we are still firmly in the camp that market sentiment for CVE will continue improving in 2024 as we gain better visibility on TMX line fill, which should support further narrowing of WTI–WCS differentials, where CVE retains the highest torque within the Canadian large-cap integrated space. For context, following our estimate revisions, we now see the stock trading at an apathetic 4.5 times 2025 EV/DACF multiple at strip prices, a nearly two full-turn discount vs its integrated peers (6.3 times).
“From a capital return perspective, CVE remained elusive on the timeline for achieving its $4.0-billion net debt floor, which is prudent, in our view, given previous corporate messaging missteps on this front, although it has not stopped capital returns from materially outpacing our model expectations. Based on the most recent SEDI filings, CVE had already repurchased 10.7 million shares in October and November for $263-million, well above our previous 4Q23 estimate of $100-million, with another month remaining on the books. There’s something to be said about getting your holiday shopping done early!”
Mr. MacCulloch trimmed his target for Cenovus shares by 50 cents to $34, keeping a “buy” recommendation. The average is currently $32.44.
“While the stock is now a ‘show me’ story in the eyes of many investors, we believe it will continue gaining momentum through consistent operational execution and with 2023 operational headaches consigned to the history books, coinciding with TMX coming online,” he said. “We continue to highlight CVE as our top pick in the Canadian large-cap integrated space.”