Stifel In a research note released Tuesday titled On the Cusp of Egress Growth, Stifel analysts Cody Kwong and Michael Dunn updated their estimates for Canadian energy exploration and production companies ahead of what they expect to be a “drama-free” first-quarter earnings season.
“Outside modest winter storm impacts for some in January, we gauge activity in the quarter was still relatively robust, with most executing a quarterly capital program that will be the highest in the 2024 plan,” they said. “With that said, given moves in the crude oil and natural gas prices, we anticipate cash flows in our universe to be down 20 per cent quarter-over-quarter. Since our last formal update, we have observed spot/futures oil prices move meaningfully higher (with tightening heavy oil differentials), while the forward natural gas curve has been relatively static. With this as the backdrop, we are elevating our target prices across our universe by 9 per cent on average in this update and believe momentum into the start-up of TMX and LNG Canada will continue to attract investor attention to the Canadian E&P space.”
The analysts expect few surprises over the next couple of weeks, believing companies in their coverage universe are “largely captured in sell-side estimates.
“The notable outliers in our 1Q24 CFPS estimates vs consensus to the downside (appreciating FACTSET consensus estimates are sometimes stale-dated) are CNQ, ATH, BIR and KEL (10 per cent below consensus), while we are notably above consensus for IPCO and SDE (14 per cent above consensus),” they said.
“Don’t expect many changes to 2024 capital budgets alongside 1Q24 earnings. Between a volatile commodity price picture and many companies already fine-tuning their capital plans earlier this year, we don’t believe there will be much in the way of changes to 2024 capital plans. Rather, we believe the 2Q/3Q24 earnings reports will have more to offer in this regard, as companies can better evaluate corporate production performance coming out of spring break-up while having more time to see how cash uses match up with anticipated cash flows for the year.”
For large cap and intermediate E&Ps, their target changes are:
- Arc Resources Ltd. ( “buy”) to $31 from $29. The average is $28.69.
- Baytex Energy Corp. ( “buy”) to $7 from $6.25. Average: $6.32.
- Canadian Natural Resources Ltd. ( “buy”) to $126 from $110. Average: $111.17.
- Crescent Point Energy Corp. ( “buy”) to $16 from $14.25. Average: $14.29.
- Enerplus Corp. ( “buy”) to $32 from $27.25. Average: $25.02.
- Peyto Exploration & Development Corp. ( “buy”) to $18 from $16.50. Average: $16.95.
- Paramount Resources Ltd. ( “buy”) to $36 from $33. Average: $36.45.
- PrairieSky Royalty Ltd. (“buy”) to $30 from $27. Average: $28.44.
- Tourmaline Oil Corp. ( “buy”) to $80 from $75. Average: $76.88.
- Topaz Energy Corp. ( “buy”) to $27 from $25. Average: $27.25.
- Vermilion Energy Inc. ( “buy”) to $22 from $20.25. Average: $20.92.
- Whitecap Resources Inc. ( “buy”) to $13.75 from $12.75. Average: $12.90.
The analysts said: “Best Ideas. We believe the oil price momentum and earnings power of our oil-weighted entities will continue to surge. On the flip side, we suspect we will be in for some daunting headwinds with Canadian natural gas prices into the summer which could offer a more compelling entry point into the gassier names. Our favourite oil-weighted names heading into the quarter are CPG, PXT and TVE, while of the natural gas-weighted entities, we most favour CR, KEC, KEL and SDE.”