I hate them! I want to pound on them! Oil and gas stocks: 2022 could be the 'profitability sweet spot,' says CIBC (yahoo.com)
This year could be a "profitability sweet spot" for Canada's oil and gas sector, according to analysts at CIBC Capital Markets who see a higher-for-longer commodity price cycle outpacing cost inflation.
Rising oil and gas prices, driven by tight global supply, have padded profit margins across the energy sector in recent quarters. However, the team of CIBC analysts led by Jamie Kubik warns the cost of mining, drilling, and buying materials like steel and chemicals is set to increase, while rising taxes and royalty payments could blunt free cash flow for producers.
"We see three sources of cost inflation that investors need to be mindful of as we move into the second half of 2022 and 2023. Rising capital costs, taxes and royalties each have the potential to soften free cash flow yields," Kubik wrote in a note to clients. "The timing lag could also see 2022 as a profitability sweet spot for the sector, offering a prime opportunity for increased share repurchases and balance sheet repair."
Kubik raised his price targets for 18 Canadian energy stocks on Wednesday, including ARC Resources (ARX.TO)(ARCH), Crescent Point Energy (CPG.TO)(CPG), and Tourmaline Oil (TOU.TO).