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Cenovus (CVE) Jumps 30.7% in 6 Months: More Room to Run?

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Cenovus Energy Inc.’s (CVE - Free Report) shares have jumped 30.7% in the past six months against a 6.2% decline of the industry. Calgary, Canada-based Cenovus is a leading integrated energy firm with a market cap of $19.3 billion. It continues to benefit from the massive oil projects in Alberta.

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Can It Retain Momentum?

The answer is yes and before we get into the details, let us show you how its estimates for 2021 stand. The Zacks Consensus Estimate for 2021 earnings per share stands at 75 cents, signaling a massive improvement from last year’s loss of $1.59. The estimate has remained stable over the past week.

Now let’s delve into what’s driving the company.

The production guidance for 2021 has been revised upward by the company to 750,000-790,000 barrels of oil equivalent per day (Boe/d). This suggests an improvement from the 2020 production figure of 471,740 Boe/d. The increased output, coupled with high commodity prices, will boost the bottom line in 2021. The capital guidance remains in the range of $2.3-$2.7 billion for the year. With increased production volumes and low capex, it is expected to generate higher cash flows, which will support long-term growth opportunities.

From 2020 to 2024, Cenovus expects to see compound annual production growth of 2-3%. Its moves like expanding the Terra Nova asset life and restarting the West White Rose project can enable it to attain the target. With disciplined capital investment and production growth, the integrated energy player projects consistent growth in earnings and fund flows during the period.

Meanwhile, the Zacks Rank #3 (Hold) company is restructuring its stakes in the Atlantic region with respective partners in Terra Nova and White Rose projects. The move is expected to improve the company’s economics in the region. Also, it will make the upstream portfolio more profitable and free up some capital, which can be allocated more efficiently toward producing assets. These steps are likely to boost shareholder value.

Additionally, the company is working toward reaching the target of $10-billion net debt this year. At second quarter-end, it had $12.4 billion in net debt. With rising free funds in recent quarters, Cenovus is likely to achieve the goal within time. In the first half of 2021, it generated $1,877 million in free funds flow, reflecting a major improvement from the year-ago free funds outflow of $1,074 million. Upon reaching the goal, it intends to allocate some of the free funds for increasing shareholder returns.

Risks

There are a few factors that are holding back the stock from reaching complete potential. Lower refining margin from the U.S. manufacturing business has been hurting the firm. Also, increasing transportation and blending expenses, and costs for purchased products are concerning. Higher fuel prices can affect its profits from Oil Sands operations. Nevertheless, we believe that its systematic and strategic plan of action will drive long-term growth.

Stocks to Consider

Some better-ranked stocks from the energy space include RPC, Inc. (RES - Free Report) , Cheniere Energy, Inc. (LNG - Free Report) and Kinder Morgan, Inc. (KMI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RPC’s bottom line for 2021 is expected to surge 88.9% year over year.

The Zacks Consensus Estimate for Cheniere Energy’s bottom line for 2021 is pegged at $2.98 per share, indicating a massive improvement from the year-ago loss of 34 cents.

Kinder Morgan’s bottom line for 2021 is expected to rise 47.7% year over year.


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