Opinions
Eric Nuttall
Ovintiv
OVV-T
DON'T BUY
Jun 19, 2020
Stock price when the opinion was issued
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The former Encanna moved to the US. It was a disappointment to the market. During the pandemic they decided to move it to the US from where the new CEO was managing the assets. See his top picks today. It would be okay to own this as a short term play.
OVV holds highly productive assets in the Montney, Anadarko and Permian basins. They have worked hard to optimize assets following the acquisition of Newfield in 2019. We like that it has maintained cash reserves while reducing debt and it trades under 2x book value. The dividend is backed by a payout ratio under 10% of cash flow. We recommend placing a stop-loss at $49, looking to achieve $81 -- upside potential of 29%. Yield 2.1%
(Analysts’ price target is $81.05)As a predictive question it is of course difficult. OVV is quite cheap and producing nice free cash flow. Positive momentum has returned to the sector. It has room for further dividend hikes. We would be comfortable holding for a while.
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They refocused operations on the Montney and are pushing strong into the US (Utah, the Permian Basis). It's been rangebound like all energy stocks since 2022, but the free cash-flow yield is a high 15%. They have quality assets, but are in no-man's land (changing the company name and pushing in the US) and not a focus for Canadian energy investor and lacks the scale of US peers. That said, is a good operator run by a good CEO. Not his preferred energy name.
VET vs OVV? They are both stocks he would not own. OVV participated well on expected index buying in the US, but they are no longer able to attract US investors based on their share price. It is a non-starter for sure. VET cut the dividend and they changed management, but it will be a long road. They can't sell assets to help reduce debt and they can't raise the dividend. They are in far too many geographical areas and he thinks they have lost focus.