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6 Reasons to Invest in Canadian Natural (CNQ) Right Now

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Canadian Natural Resources Company (CNQ - Free Report) looks compelling at the moment. We are positive on the company’s prospects and believe that the time is right for you to add the stock to your portfolio, as it looks promising and is poised to carry the momentum ahead.

Canadian Natural currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or #2 offer the best investment opportunities for investors.

Let’s delve deeper to analyze the factors that make this Calgary-based energy explorer an attractive investment option at the moment.

Impressive Portfolio & Production Mix

Canadian Natural’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. Canadian Natural’s substantial world class oil sands mining assets, which include Horizon Oil Sands and the Athabasca Oil Sands Project (AOSP), are of particular significance. Through these properties, the firm holds leases that contain an estimated six billion barrels of proved and probable SCO reserves.  

The company has a broad portfolio of low-risk exploration and development projects, with a strong international exposure that yields long-term volume growth at above-average rates. Its balanced and diverse production mix — 38% synthetic crude oil, 25% heavy crude oil, 25% natural gas and 12% light crude oil — boosts long-term value. This also significantly reduces Canadian Natural’s risk profile and lends its results a high level of stability.

Opportunistic Acquisitions

Canadian Natural’s prudent and well-timed acquisitions have allowed the company to improve its competitive edge, apart from boosting revenues and earnings. In 2017, the company acquired 70% interest in the Athabasca Oil Sands project for $8.5 billion, which added significant value to its asset base and buoyed cash flow prospects. Being in close proximity to Horizon's operations enables the company to benefit from synergies.

Recently, the project joined the elite one-billion-barrel club in July, as it produced one billion barrels of mined bitumen since it became functional in 2003. Last year, the company bought Pelican Lake assets for $807 million, which further strengthened its operations.

Strong Second Quarter and Bright Prospects

Canadian Natural saw its profits jump in second-quarter 2018, supported by a spike in crude prices and output levels. The company recorded earnings per share of 81 cents, up 189% year over year. Revenues of $4,613 also surged 67.3% from second-quarter 2017 figure of $2,758 million. Notably, both the top and bottom lines surpassed the Zacks Consensus Estimate.

Canadian Natural continues to ramp up production at its Horizon and AOSP oil sands mining facilities. The projects netted around 408 thousand barrels per day to Canadian Natural in the second quarter.

Notably, the company projected around 16% year-over year increase in its overall production volume in 2018, primarily on the back of its Athabasca and Horizon Oil Sands Project.  

Cash Flow Strength and Investor-Friendly Moves

Canadian Natural fares well in the free cash flow (FCF) parameter, which is a key metric to gauge the financial health of a company. It generated FCF of C$2.2 billion on a year-to-date basis. While Canadian Natural returned around C$1.2 billion through dividend and buybacks, the remaining FCF was utilized in paying back the debts. As the second quarter culminated, the company repurchased an additional 722.6 million common shares. With oil prices expected to remain strong over the next few quarters, Canadian Natural should be able to maintain its strong level of cash flow with the help of rising production.

A Dividend Aristocrat

Canadian Natural is a dividend aristocrat with a yield of around 3%, higher than both the industry and S&P 500. What’s more, the company has a solid track record of dividend hikes, making it a high-yield, dividend growth play. In March 2018, the firm raised its dividend by 22%, marking the 18th consecutive year of payout increase. The attractive dividend has buoyed investors’ optimism surrounding the stock.   

Estimates Northbound

Annual earnings estimates for Canadian Natural have moved north over the past two months, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2018 has increased around 18.8% to $2.84 per share. The Zacks Consensus Estimate for 2019 has also moved up 19.2% over the same time frame to $2.98.

Other Stocks That Warrant a Look

Apart from Canadian Natural, investors interested in the energy sector may also consider other top-ranked stocks like TC PipeLines, LP (TCP - Free Report) , Eclipse Resources Corporation and Petrobras (PBR - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

TC Pipelines’ 2018 earnings are expected to grow 18.67% year over year.

Eclipse Resources pulled off an average positive earnings surprise of 183.33% in the trailing four quarters.

Petrobras delivered an average positive earnings surprise of 10.37% in the trailing four quarters.

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