Canadian Natural Resources: High Energy Prices Support Financials

Canadian Natural Resources Ltd. (CNQ) is an oil and natural gas production company. It is engaged in the exploration, development, marketing, and production of crude oil, natural gas, and natural gas liquids (NGLs). Canadian Natural Resources Limited was incorporated in 1973 and is headquartered in Calgary, Canada.

I am bullish on CNQ stock. There is good profitability and an attractive valuation and dividend yield. After a bad 2020 year, in which the company reported a net loss, CNQ made a strong turnaround in the first nine months of 2021. High persistent crude oil prices above $80 per barrel are supportive for strong revenue and even more improved profitability margins.

Shares of Canadian Natural Resources rallied in 2021 with gains of over 80%, and also made a strong start in 2022 with year-to-date gains of ~23%.

Canadian Natural Resources Business News

On January 11, 2022, the company reported its 2022 budget, highlighting key milestones achieved in 2021 and forecasts for 2022.

Canadian Natural’s President, Tim McKay, commented, “In 2022, our diversified production mix is targeted to consist of approximately 46% light and synthetic crude oil, 28% heavy crude oil, and 26% natural gas, at the mid-point of our targeted production range. Our assets have low maintenance capital requirements and combined with our strong operating teams and our effective and efficient operations, we drive industry-leading free cash flow, making Canadian Natural unique, robust and sustainable.”

He also added, “Our 2022 budget is targeting base capital of approximately $3.6 billion that delivers targeted production of approximately 1,270,000 BOE/d to 1,320,000 BOE/d, with disciplined year over year near-term growth of approximately 60,000 BOE/d derived primarily from production growth in our conventional E&P operations. Also, in 2022, strategic growth capital of approximately $0.7 billion will be allocated to our long-life low decline assets, which target to add incremental annual production in 2023 and beyond, resulting in approximate total increases in production of 63,000 bbl/d by 2025.”

Note: Financial figures are in Canadian Dollars unless otherwise stated.

Third Quarter 2021 Results: A Beat on EPS and Revenue

CNQ stock earnings have started a strong turnaround in 2021 from the very poor results in 2020.

In Q3 2021, the company reported EPS GAAP of $1.49 USD, a beat by $0.24, and revenue of $6.19 billion USD, a beat by $148.2 million.

For the three months ended September 2021, the company reported year-over-year net earnings of $2.2 billion versus $408 million and cash flows from operating activities of $4.29 billion versus $2.07 billion.

Canadian Natural’s Chief Financial Officer, Mark Stainthorpe, stated, “During the third quarter of 2021, our robust business model delivered strong net earnings of over $2.2 billion and adjusted net earnings of approximately $2.1 billion. Our diversified portfolio of world-class assets, combined with effective and efficient operations in a strong commodity price environment, allowed us to continue to enhance returns to shareholders by repurchasing shares and reducing debt at a faster rate than originally targeted.

“The company’s balance sheet continues to be a priority and was further strengthened during the quarter with ending net debt at approximately $15.9 billion, a reduction of approximately $2.3 billion compared to Q2 2021. We remain on track to meet our full-year 2021 capital investment target of approximately $3.48 billion.”

Fundamentals – Risks

The company has been strengthening its balance sheet, which is very positive for the stock and has also repurchased shares while reporting very strong operational results, such as the quarterly free cash flow of approximately $2.2 billion.

On top of that, the company reported a 25% increase in the quarterly dividend from $0.47 to $0.5625.

Investors looking for Top Dividend Stocks or relying on a safe, stable, and growing dividend for passive investing will be glad to know that the latest dividend increase payable on January 5, 2022, marks the 22nd consecutive year of dividend increases for Canadian Natural Resources.

Furthermore, the company has had a historical dividend compound annual growth rate of 20% over the last 22 years. This is very impressive indeed.

CNQ’s revenue per share has been in decline over the past three years, but in general, the stock has a Piotroski F-Score of 7, indicating a very healthy situation.

As per the latest quarter, the debt/equity ratio of 0.44 is not raising concerns, and after a very bad financial performance in 2020, key metrics have strongly rebounded on TTM basis.

In 2020, the company reported a net loss of ($435 million). In the first nine months of 2021 cumulative net income reported was $5.13 billion. As for the cash flow, this has been very strong, too, with a free cash flow of $6.8 billion for the first three quarters of 2021.

Valuation

CNQ stock is attractive based on its P/E ratio of 13.2x compared to the U.S. oil and gas industry average of 17.5x, while its CNQ’s P/B ratio of 1.8x is similar to the industry average.

Wall Street’s Take

Turning to Wall Street, Canadian Natural Resources has a Strong Buy consensus based on 12 buys and four holds. The average Canadian Natural Resources price target of $52.05 represents 0.2% upside potential.

Conclusion

CNQ has made a very strong turnaround in the first nine months of 2021. It has strengthened its balance sheet and returned capital to shareholders, increasing its dividend substantially and investing capital in share buybacks. The valuation is attractive now, and this applies to its dividend yield too. 

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