Cenovus (TSX:CVE) is one of many successful energy stock investments. With a growth of over 104% over the last five years, it has outperformed its industry. The stock prices of its rivals in the integrated energy sub-sector decreased by 2% as opposed to this. The share price of Cenovus fell by 3% in November.
After its long and successful run, this may have some of us wondering if CVE stock on the TSX is still a buy today. Lets look into this.
Husky Energy is doing quite well today after surviving the protracted downturn in the oil and gas sector. This is partly because of the business’ audacious actions during the worst of the recession. Husky’s high-quality asset base, historically excellent operational standards, and financial management are to thank for this.
We only need to look at the company’s actions during the height of the oil and gas industry’s desperation to see the decisions I’m referring to. Two things contributed to this. They had the resources in the first place because they did a great job managing the business and its finances. However, they also had the insight, conviction, and bravery to take action when circumstances were at their worst. A few years ago, it was widely believed that the sector held little hope.
Cenovus acquired the oil sands and Canadian natural gas assets of ConocoPhillips in March 2017. Oil prices were trading in the upper $40s at the time. Additionally, there was a very poor outlook for the industry. The issue grew much worse as time went on. Oil traded at an average price of $49 by the year 2020. It fell into the negative in April 2020. It was a tense situation.
However, Cenovus completed another deal in January 2021. This time, they acquired integrated Husky Energy, providing Cenovus access to the very lucrative refining industry at a discount. Cenovus acquired Husky for a “once-in-a-generation valuation,” according to CEO Alex Pourbais. I concur.
More opportunities are coming from the Husky takeover
At the time of the Husky acquisition, Cenovus estimated that the synergies they could achieve would exceed an annual run rate of $1.2 billion. Today, Cenovus is tracking above this as the company applies its operating practices to the acquired assets.
Additionally, many opportunities exist to increase production efficiencies at the purchased assets. There are a lot of opportunities that are low-hanging. It results from a lack of production investment during challenging times for the sector. Husky will therefore continue to increase production while making modest capital investments.
Windfall coming from Cenovus
With the ability to make adjustments and draw out synergies, Cenovus has greatly benefited from buying low-price assets. The most recent quarter, the third quarter of 2022, had a $3 billion cash flow for the company and a $2.1 billion free cash flow. After paying off its debt, the company had an astonishing $1.8 billion additional cash flow.
Cenovus already paid off $4.3 billion of net debt in 2022. Its current value is $7.8 billion. The corporation predicts that net debt will reach its target of $4 billion before the year is over.
This is important since it denotes a change within the organization. Excess free funds flow, or operational funds flow with fewer capital expenditures, will now be entirely allocated to owners. In addition to share buybacks when Cenovus Energy’s stock price on the TSX is around $20 and special dividends when CVE stock is around $30, the payout will also include dividend increases for the regular dividend.