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On Sep 18, Zacks Investment Research upgraded Calgary, Alberta based independent exploration and production (E&P) company, Canadian Natural Resources Ltd. (CNQ - Analyst Report) to a Zacks Rank #2 (Buy).

Why the Upgrade?

Canadian Natural possesses a diverse asset base both geographically and in terms of product, comprising approximately 30% natural gas and 70% crude oil with the bulk of production located in G8 countries. We believe this significantly reduces the company’s risk profile and consequently results in a high level of stability.

In addition to the conventional oil and gas production assets, Canadian Natural is also a major oil sands player with several projects in inventory. The company achieved a significant milestone in Feb 2009 when it initiated the Horizon oil sands program. Production of Synthetic Crude Oil (SCO) from the project has averaged more than 100,000 barrels per day (Bbl/d) in the recent times.

Canadian Natural’s strong, balanced and diverse asset portfolio, combined with its focus on low cost operations, allowed it to generate substantial free cash flow even in a low price environment.

Moreover, Canadian Natural displays a healthy financial position, reflected by a debt-to-capitalization ratio of 29.0%, making the company less susceptible to financial risk. Backed by this, management has hiked dividend for 13 consecutive years with a compounded annual growth rate of 21%.

Lastly, on Aug 8, 2013, Canadian Natural reported strong second-quarter 2013 results owing to decline in E&P operating costs and higher natural gas price realizations. Earnings per share, excluding one-time and non-cash items came at 42 Canadian cents (41 US cents), surpassing the Zacks Consensus Estimate of 39 U.S. cents.

Owing to these positive developments, the tendency for an upward estimate revision has been obvious in recent times. In fact, the Zacks Consensus Estimate for the third quarter has increased by 16.1% to 72 cents per share over the last 60 days. Additionally, for 2013, most of the estimates (7 out of 9 estimates) were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 9.0% to $2.31 per share.  

Other Stocks to Consider

In addition to Canadian Natural, one can look at energy firms like Range Resources Corp. (RRC - Analyst Report), Dril-Quip Inc. (DRQ - Analyst Report) and SM Energy Co. (SM - Analyst Report) that offer value. All the stocks sport a Zacks Rank #1 (Strong Buy).

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