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Ovintiv (OVV) Down 10.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Ovintiv (OVV - Free Report) . Shares have lost about 10.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ovintiv due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Ovintiv Reports Better-Than-Expected Q3 Earnings

Ovintiv reported adjusted earnings per share of $1.50, beating the Zacks Consensus Estimate of $1.47. However, the year-ago bottom line was a loss of 3 cents per share. This upside in results can be attributed to a higher commodity price realization and successful cost-control initiatives.

Total revenues of $1.79 billion missed the Zacks Consensus Estimate of $2.05 billion owing to lower-than-expected Natural gas production. Natural gas production came in at 1,566 million cubic feet per day (MMcf/d), missing the Zacks Consensus Estimate of 1,581MMcf/d. The top line improved 50.33% from the year-ago sales of $726 million.

Ovintiv’s board of directors declared a quarterly dividend of 14 cents per share for its common shareholders of record as of Dec 15, 2021, which will be paid out on Dec 31.

Production and Prices

Total third-quarter production came in at 534,700 barrels of oil equivalent per day (BOE/d) compared with 510,200 BOE/d in the prior-year period. The rise in volumes was owing to a balanced commodity mix. Natural gas production rose 8.6% year over year to 1,566MMcf/d while liquids production was up 1.4% to 273,600 BOE/d.

Ovintiv's realized natural gas price was $3.02 per thousand cubic feet compared with the year-ago level of $2.15. Realized oil price increased to $53.31 per barrel from $41.39 in the third quarter of 2020.

Costs, Capex and Balance Sheet

Total expenses decreased to $1.8 billion from the year-ago figure of $2.7 billion. This decline is primarily attributed to lower depreciation, depletion and amortization charges.

Ovintiv’s cash from operating activities in the quarter under review summed $812 million, up from the year-ago figure of $493 million. The company's capital investments were $365 million compared with $351 million in the year-ago period.

As of Sep 30, Ovintiv had cash and cash equivalents worth $8 million, and long-term debt of $4.8 billion. Its debt-to-capitalization ratio was 55.8.

OVV generated a non-GAAP free cash flow of $480 million.

In the third quarter, Ovintiv reduced its net debt by $409 million to $4.8 billion. OVV is on track to meet its $4.5 billion net debt target for the year.

Ovintivset a new net debt target of $3 billion, which it intends to meet by the end of 2023, assuming oil prices to be trending at $50 per barrel and natural gas prices at $2.75 per Mcf on the NYMEX. OVV aims to accomplish this goal without funds from asset sales.

In the third quarter, OVV received a regulatory clearance for a share buyback program, thus advancing its goal to boost its shareholder returns.

This move was in line with the company's capital allocation strategy, which aims to unlock shareholder value by delivering on its strategies like solid liquidity, increased cash distributions to its shareholders, better returns on capital investment and ESG development.

Ovintiv aims to return 25% of the preceding quarter's free cash flow after base dividends to its shareholders through share buybacks and/or variable dividends starting the fourth quarter of 2021 and continuing until it meets its $3-billion net debt objective.

Guidance

Ovintiv reaffirms its 2021 capital expenditure at $1.5 billion. Following its assets' significant output performance, OVV now projects crude oil and condensate volumes to average between 191,000 barrels per day (bpd) and 194,000 bpd in 2021.

With a capital expenditure of $1.5 billion envisioned for 2022, OVV aims to sustain its crude and condensate production volume view in the 180-190 Mbbls/d range, similar to the second half of 2021.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 6.23% due to these changes.

VGM Scores

At this time, Ovintiv has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Ovintiv has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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