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Canadian Natural's Shares Up 15% Year to Date: Time to Buy or Hold?
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Canadian Natural Resources Limited (CNQ - Free Report) , one of Canada's largest independent energy companies engaged in the exploration, development and production of oil and natural gas, demonstrated resilience in a volatile oil and energy market with its share price increasing 14.7% year to date.
This gain outperformed the broader CNQ Quick QuoteCNQ - Free Report) ">oil and energy sector, which has risen 7.2% at the same time. Moreover, CNQ outpaced its peers in the Canadian Oil and Gas Exploration and Production industry, including Ovintiv Inc. (OVV - Free Report) .
YTD Price Comparison
Image Source: Zacks Investment Research
CNQ makes money by finding and producing oil and gas, which it sells to other companies. It also owns pipelines to move the oil and gas around. The company has a varied range of products, including heavy and light crude oil, natural gas, bitumen and synthetic crude oil. CNQ’s core operations are focused in Western Canada, the United Kingdom sector of the North Sea and offshore Africa, which includes Côte d’Ivoire, Gabon and South Africa.
What’s driving CNQ's rise? Let's take a closer look at the key factors behind its strong year-to-date performance and assess whether this momentum is likely to persist or not.
CNQ’s Recent Development
Recently the company has announced that it plans to buy Chevron Corporation's (CVX - Free Report) subsidiary, Chevron Canada Limited's 20% stake in the Athabasca Oil Sands Project (“AOSP”), which includes the Muskeg River and Jackpine mines, the Scotford Upgrader and the Quest Carbon Capture and Storage facility. This deal is pending regulatory approval and will boost CNQ's stake in AOSP to 90%. This acquisition is expected to add about 62,500 barrels per day of long-lasting Synthetic Crude Oil production, enhancing Canadian Natural's ability to generate free cash flow.
Additionally, CNQ will also acquire CVX’s 70% stake in light crude oil and liquid-rich assets in the Duvernay play in Alberta. Regulatory approvals are pending. This part of the deal is expected to produce around 60,000 barrels of oil equivalent per day by 2025, including significant amounts of natural gas and liquids. These assets are expected to provide strong growth opportunities and additional cash flow in the near term.
Why Investor’s Might Consider Buying CNQ Stock
Strong Production Growth: The company continues to grow its production, having achieved 8% year-over-year growth in second-quarter 2024. This growth is largely due to strong performance across its diverse range of assets, particularly in heavy oil, oil sands and natural gas. CNQ’s management expects that the company projects total liquid production to range from 977 thousand barrels of oil equivalent per day (boe/d) to 1,008 boe/d for 2024. This estimate incorporates a natural gas production prediction of 2,120 -2,230 MMcf/d for the same time.
Strong Financial Performance: CNQ delivered strong second-quarter results, with adjusted net earnings of C$1.9 billion and adjusted funds flow of C$3.6 billion, up from the year-ago quarter’s reported figures. This robust cash flow reflects the company’s operational efficiency and cost control across assets, leading to significant returns to its shareholders through dividends and share buybacks.
Image Source: Canadian Natural Resources Limited
Operational Efficiency and Resilience: The company operates a balanced and diversified asset portfolio, focusing on long-life, low-decline reserves, which are more resilient to market fluctuations. CNQ’s disciplined capital allocation strategy helps maximize its shareholder value and maintain production with lower capital exposure.
Commitment to Shareholder Returns: CNQ has consistently prioritized shareholder returns, with a 24-year track record of dividend increases. In 2024, dividends were increased again and the company continues to buy back shares, providing solid income potential for investors.
While CNQ's impressive performance and strategic growth initiatives present a compelling case for investment, potential investors should also take into account several cautionary factors that could impact the stock's performance.
Cautionary Factors of CNQ Stock
Valuation Concerns Post 14% Rally: CNQ currently has a P/E ratio of 14.1, which is above the sub-industry average of 13.14 for Canadian Oil and Gas Exploration and Production companies. Despite the recent year-to-date rally, this may indicate that much of the positive news has already been factored into the stock price. Investors might consider waiting for a pullback or more financial clarity before entering, as the stock could be nearing overvaluation based on current earnings and growth projections.
Image Source: Zacks Investment Research
Natural Gas Price Sensitivity and Earnings Projections: Although CNQ is a major producer of natural gas, it remains exposed to volatility in gas prices. The company curtailed gas production in 2024 due to weak pricing and will only resume when prices improve, highlighting sensitivity to the commodity’s fluctuating market. According to the Zacks Consensus Estimate, CNQ's earnings per share are expected to fall to $2.5 in 2024, which is a year-over-year drop of 12.89%.
Image Source: Zacks Investment Research
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Cyclicality of Oil Markets: CNQ’s business model, while strong, is still highly dependent on the global oil market. Supply disruptions or OPEC+ decisions could lead to price shocks affecting CNQ's earnings. The company is well-positioned, but CNQ cannot completely shield itself from these external risks.
Increased Debt Levels: In 2019, the company boosted its crude production capacity by acquiring Devon Energy's Canadian operations for C$3.8 billion. However, this deal required taking on a C$3.25 billion loan with a three-year repayment term, which increased its debt-to-capital ratio. As a result, CNQ is now facing higher interest expenses, potentially impacting profits.
Verdict for CNQ Stock
CNQ has seen a solid rise in share price year to date, supported by a balanced asset portfolio, strong production growth and impressive financial results. This positions CNQ well in the energy sector and suggests a positive growth trajectory. Among 18 brokers, seven recommend Strong Buy, two suggest Buy and nine rate Hold—no Sell ratings are present. However, this stock is currently above industry averages, suggesting potential overvaluation.
Risks include exposure to volatile natural gas prices, the cyclical oil market, high capital investment needs and increased debt. Given this mix of strengths and potential challenges and with the company currently trading 27.6% up from its 52-week low, investors should wait for a more opportune entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Canadian Natural's Shares Up 15% Year to Date: Time to Buy or Hold?
Canadian Natural Resources Limited (CNQ - Free Report) , one of Canada's largest independent energy companies engaged in the exploration, development and production of oil and natural gas, demonstrated resilience in a volatile oil and energy market with its share price increasing 14.7% year to date.
This gain outperformed the broader CNQ Quick QuoteCNQ - Free Report) ">oil and energy sector, which has risen 7.2% at the same time. Moreover, CNQ outpaced its peers in the Canadian Oil and Gas Exploration and Production industry, including Ovintiv Inc. (OVV - Free Report) .
YTD Price Comparison
Image Source: Zacks Investment Research
CNQ makes money by finding and producing oil and gas, which it sells to other companies. It also owns pipelines to move the oil and gas around. The company has a varied range of products, including heavy and light crude oil, natural gas, bitumen and synthetic crude oil. CNQ’s core operations are focused in Western Canada, the United Kingdom sector of the North Sea and offshore Africa, which includes Côte d’Ivoire, Gabon and South Africa.
What’s driving CNQ's rise? Let's take a closer look at the key factors behind its strong year-to-date performance and assess whether this momentum is likely to persist or not.
CNQ’s Recent Development
Recently the company has announced that it plans to buy Chevron Corporation's (CVX - Free Report) subsidiary, Chevron Canada Limited's 20% stake in the Athabasca Oil Sands Project (“AOSP”), which includes the Muskeg River and Jackpine mines, the Scotford Upgrader and the Quest Carbon Capture and Storage facility. This deal is pending regulatory approval and will boost CNQ's stake in AOSP to 90%. This acquisition is expected to add about 62,500 barrels per day of long-lasting Synthetic Crude Oil production, enhancing Canadian Natural's ability to generate free cash flow.
Additionally, CNQ will also acquire CVX’s 70% stake in light crude oil and liquid-rich assets in the Duvernay play in Alberta. Regulatory approvals are pending. This part of the deal is expected to produce around 60,000 barrels of oil equivalent per day by 2025, including significant amounts of natural gas and liquids. These assets are expected to provide strong growth opportunities and additional cash flow in the near term.
Why Investor’s Might Consider Buying CNQ Stock
Strong Production Growth: The company continues to grow its production, having achieved 8% year-over-year growth in second-quarter 2024. This growth is largely due to strong performance across its diverse range of assets, particularly in heavy oil, oil sands and natural gas. CNQ’s management expects that the company projects total liquid production to range from 977 thousand barrels of oil equivalent per day (boe/d) to 1,008 boe/d for 2024. This estimate incorporates a natural gas production prediction of 2,120 -2,230 MMcf/d for the same time.
Strong Financial Performance: CNQ delivered strong second-quarter results, with adjusted net earnings of C$1.9 billion and adjusted funds flow of C$3.6 billion, up from the year-ago quarter’s reported figures. This robust cash flow reflects the company’s operational efficiency and cost control across assets, leading to significant returns to its shareholders through dividends and share buybacks.
Image Source: Canadian Natural Resources Limited
Operational Efficiency and Resilience: The company operates a balanced and diversified asset portfolio, focusing on long-life, low-decline reserves, which are more resilient to market fluctuations. CNQ’s disciplined capital allocation strategy helps maximize its shareholder value and maintain production with lower capital exposure.
Commitment to Shareholder Returns: CNQ has consistently prioritized shareholder returns, with a 24-year track record of dividend increases. In 2024, dividends were increased again and the company continues to buy back shares, providing solid income potential for investors.
While CNQ's impressive performance and strategic growth initiatives present a compelling case for investment, potential investors should also take into account several cautionary factors that could impact the stock's performance.
Cautionary Factors of CNQ Stock
Valuation Concerns Post 14% Rally: CNQ currently has a P/E ratio of 14.1, which is above the sub-industry average of 13.14 for Canadian Oil and Gas Exploration and Production companies. Despite the recent year-to-date rally, this may indicate that much of the positive news has already been factored into the stock price. Investors might consider waiting for a pullback or more financial clarity before entering, as the stock could be nearing overvaluation based on current earnings and growth projections.
Image Source: Zacks Investment Research
Natural Gas Price Sensitivity and Earnings Projections: Although CNQ is a major producer of natural gas, it remains exposed to volatility in gas prices. The company curtailed gas production in 2024 due to weak pricing and will only resume when prices improve, highlighting sensitivity to the commodity’s fluctuating market. According to the Zacks Consensus Estimate, CNQ's earnings per share are expected to fall to $2.5 in 2024, which is a year-over-year drop of 12.89%.
Image Source: Zacks Investment Research
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Cyclicality of Oil Markets: CNQ’s business model, while strong, is still highly dependent on the global oil market. Supply disruptions or OPEC+ decisions could lead to price shocks affecting CNQ's earnings. The company is well-positioned, but CNQ cannot completely shield itself from these external risks.
Increased Debt Levels: In 2019, the company boosted its crude production capacity by acquiring Devon Energy's Canadian operations for C$3.8 billion. However, this deal required taking on a C$3.25 billion loan with a three-year repayment term, which increased its debt-to-capital ratio. As a result, CNQ is now facing higher interest expenses, potentially impacting profits.
Verdict for CNQ Stock
CNQ has seen a solid rise in share price year to date, supported by a balanced asset portfolio, strong production growth and impressive financial results. This positions CNQ well in the energy sector and suggests a positive growth trajectory. Among 18 brokers, seven recommend Strong Buy, two suggest Buy and nine rate Hold—no Sell ratings are present. However, this stock is currently above industry averages, suggesting potential overvaluation.
Risks include exposure to volatile natural gas prices, the cyclical oil market, high capital investment needs and increased debt. Given this mix of strengths and potential challenges and with the company currently trading 27.6% up from its 52-week low, investors should wait for a more opportune entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.