TD TD Cowen analyst Menno Hulshof thinks Canadian Natural Resources Ltd. carries “significant” momentum into 2025, pointing to its high-margin synthetic crude oil volume growth and “material” exposure to the Duvernay field in central Alberta following its US$6.5-billion acquisition of a swath of Chevron Canada Ltd. assets.
“It also offers strong natural gas optionality as Canada’s second-largest producer (if/when fundamentals start to strengthen). It has materially (and unjustifiably, in our view) underperformed peers IMO/SU [Imperial Oil/Suncor] (i.e., those with Canadian refining exposure),” he said.
On Tuesday, he added the Calgary-based company to TD’s “Best Ideas 2025″ list.
“CNQ boasts a very sustainable business model (11-per-cent production decline) and has significant capital flexibility given best-in-class portfolio diversity and infrastructure dominance,” the analyst said. “Despite dropping return of FCF to 60 per cent to accommodate the US$6.5-billion CVX acquisition, we see it reverting to 75 per cent in Q3/26 on strip (plus a competitive 4.4-per-cent divvy yield, in the interim).
“What Is Underappreciated Or Misunderstood? While the Horizon production uplift from shifting to once-every-two-year turnarounds in 2025 is well understood (+28mbbl/d [thousand barrels per day] in non-turnaround year), the associated lower opex/capex and SCO margin uplift may not be. 2025 also captures 90 per cent of the AOSP post-CVX (vs. prior 70 per cent) and completion of the Scotford Upgrader debottleneck (up 7.2mbbl/d net). On strip, we model CFPS [cash flow per share] growth of 8 per cent in 2025 (vs. peer avg. 3 per cent) with a 36-per-cent SCO weighting (up 2 per cent year-over-year). CNQ also offers material natural gas optionality as the #2 Canadian producer, and fundamentals could strengthen as LNG Canada ramps up.”
Mr. Hulshof has a “buy” rating and $58 target for CNQ shares. The average on the Street is currently $56.28.
“CNQ boasts one of the most sustainable business models within our coverage, and we continue to recommend it as a core energy holding,” he concluded. “We highlight significant capital flexibility given best-in-class portfolio diversity and infrastructure dominance as key tenets of our investment thesis. Infrastructure dominance, in particular, drives a material cost structure advantage, and an abundance of highly economic, half-cycle, drill-to-fill opportunities. We also see significant momentum on its high-margin SCO volumes into 2025, given a triple-tailwind (no Horizon turnaround, 90 per cent of the AOSP post-CVX, and completion of the Scotford Upgrader Debottleneck). While a return to 100 per cent of FCF (from 60 per cent post-CVX transaction) extends beyond 2026 on a backwardated WTI strip, RoC in absolute dollar terms is expected to be similar on a pre-and-post-deal basis given the dividend hike (concurrent with the CVX deal) and FCF generation from the acquired assets.”