Chris MacCulloch, Desjardins Securities Athabasca Oil Corp. to “hold” from “buy” with a $4.50 target (unchanged). The average target on the Street is $4.39, according to Refinitiv data.
“The stock has been on a run for the ages, racking up a 52.3-per-cent return since late June — the best-performing name in the Desjardins E&P coverage universe and massively outpacing the S&P/TSX Capped Energy Index (up 25.0 per cent, before factoring in dividends),” he said. “Naturally, with a strengthened balance sheet which was further bolstered by the completed disposition of some of the company’s non-core Montney and Duvernay assets—not to mention renewed strength in Canadian heavy oil prices prior to the upcoming commissioning of the TransMountain Expansion (TMX) project—the corporate outlook has improved in recent months. However, valuation is also beginning to stretch with a 2024 strip EV/DACF multiple of 3.7 times, which screens toward the upper end of the small- and mid-cap Canadian oil space. Moreover, there are lingering questions surrounding the company’s eventual plans to increase Leismer production to the 40,000 bbl/d regulatory-approved level, which would require a significant capital outlay, potentially necessitating alternative financing and/or a slowdown in the FCF allocation toward share buybacks. That said, our downgrade should by no means be construed as a pessimistic tone on the company, which we still believe has a very promising future as investor focus begins shifting back to the Canadian oil sands. Simply put, we see better opportunities for short- and medium-term upside elsewhere in our coverage universe following a phenomenal run in the stock, and we believe investors should look to put new money to work in other names.”