3 anchors will soon be historyIn '22 3 intra-company specific anhors that have been holding CVE's stock price down in comparison to its peers will soon be history. In six short weeks CVE will be releasing their Q4/annual results with foward guidance, which I believe will herald a new era of material shareholder returns. The 3 big anchors to be cut in next few months are:
- The HUSKY/CVE merger has gone as smoothly as to be expected with no costly surprises. However, throughout most of '21, CVE's stock price was dragged down because of execution uncertainties relating to the merger. Also, interpretting financial reports several quarters following a merger is inherently more challenging which can cause many investors to look elsewhere until the fog lifts.
- With the recent transactions CVE will most likely meet their longer term debt target of <$8 billion by the time they release their next report, which should open the gates for a several hundred percent increase in their base dividend. A sizeable and sustainable dividend will tap into the large market of income investors.
- At the current pace of divesture, Conocophilips should finished selling their original 10% holding early in Q2. With less selling pressure in '22 the stock price should drift upwards.
CVE is arguably 20% underpriced relative to its peers in a sector that is at least 50% undervalued based on the assumption of $70 oil.
I believe with the elimination of the above anchors and improving overall sentiment in the oil sector - which seems likely for many reasons, CVE could easily jump to $20-$22 without any dramatic improvement in market fundamentals. Now if oil was to trade between $80-100 next year, then a $25 target price is very realistic. Throw in a likely 3-5% dividend and things are looking pretty good for next year - Happy New Year!