Stockchase Opinions

Kevin Burkett Whitecap Resources WCP-T DON'T BUY May 26, 2021

Damaged business model. Key risk is where you see energy price volatility, the business model doesn't make sense. It does make sense in the mid-$60 range, where we are now, which is why people are picking it up. But he favours TOU.

$5.480

Stock price when the opinion was issued

Oil and Gas (Integrated Oils)
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DON'T BUY
WCP vs. TVE vs. VRN -- looking for best total return from capital appreciation plus dividends.

If you assume oil prices go up, and assume they all execute well, which is the buy right now? He likes the upfront dividend. VRN is cheapest on price and financial metrics. Production outlook posted a few days ago is quite positive.

Not sure if the easiest thesis is to buy energy right now with Trump trying to attack the price of oil. But within the group, VRN is a name that works pretty well.

BUY

Loves these energy names at this point in the cycle. Yield of 7-8%.

BUY ON WEAKNESS

Owns shares personally. Excellent company with very strong management team. Very good assets with safe dividend. Capital discipline within the sector has been very strong. 

WATCH

Here, he can look at support on the chart and know that it's real because we know about tariffs and the merger with VRN. He needs a bounce off support; if it doesn't bounce, and goes below support, then you have a problem and don't want to own. If it does bounce, then you have a target of between $11-12.

Concerns about tariffs are already built into the price, and that's why it's down.

BUY

Has looked at this for a long time. Started a new position due to selloff on the merger with VRN. Really likes Canadian oil & gas long term, tariffs notwithstanding. 

Fly in the ointment is our new prime minister, Mr. Carney, who continues to be anti-oil and -gas. Paradoxical to him, given Canada's absolutely superb endowment of oil & gas resources and related technology. Perplexing that political leadership of Canada doesn't understand the energy patch business case when we have lots to sell to lots of willing partners.

COMMENT
With the merger, good time to get in?

M&A activity is not his sweet spot. When Eric Nuttall's on next, ask him; he can unlock the growth story for you. Larry's much more of a trader.

BUY

Top mid-cap name, high dividend yield, aggressive product growth. Ramping up production, which will offer strong FCF. But capital spending is rising as a result. Scores 10/10 on value, 8/10 on fundamentals. Analysts seeing potential upside of 47%. Healthy dividend of ~8%.

BUY

He likes the WCP-Veren deal. Both were already decent companies, but together will enjoy synergy from cost savings. It will become the 4th-largest light oil producer in Canada. Management knows what it's doing, valuation good. Bigger companies here tend to enjoy a multiple increase. Veren shareholder will receive the WCP dividend, a big increase for them. The combined company will do pretty well.

WEAK BUY
WCP & VRN

Merger could be really accretive, better together. Nice dividend. Scale could really help them both. He hasn't yet seen the terms of the deal.

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Curated by Allan Tong since 2019.
99+ opinions with 4.15 rating.

TOP PICK

WCP has a book value yield of 104.9% and an earnings yield of 12.8%, both good, while it pays a 7.8% dividend yield based on a decent 53.65% payout ratio, and trades at a low 6.88x PE. Compare that to CNQ's 15.33x and Suncor's 11.6x. The street likes the deal, giving WCP an average price target of $13.36, or 42% higher, based on six buys and one hold. Obviously, the street gives the merger a thumbs up, with three analysts assigning an average price target of $13.00, including one upgrade.