Opinions
Hap (Robert) Sneddon FCSI
Whitecap Resources
WCP-T
WAIT
Apr 04, 2025
Stock price when the opinion was issued
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Premium contentWCP 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.
Profitable around $51, so you have about $6 of margin right now. Growing 3-5% per year. Paying down debt, balance sheet extremely strong. Dividends are sustainable down to $52. Wouldn't be surprised if they dialed down capex, which makes the dividend even more secure. Montney assets are significantly better than the market appreciates. Good natural gas weight. Yield is 9.3%.
Production of 179,051 b/d rose 5.5% and beat estimates of 174,000. Crude production rose 5.6%; NG liquids production rose 14%; gas production rose 2.7%. EPS of 27c did miss estimates of 39c; Revenue of $942M beat estimates of $876M. Guidance will be provided when the VRN merger closes. Even though they missed estimates, per share earnings still more than doubled. Payout ratio (12 months) is less than 25%. The dividend looks secure even with a drop in commodity prices.
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Possible risk of oil prices coming down in next 6-12 months. Important to hold a stock that can withstand commodity price volatility, good balance sheet, not too much debt, strong assets. Its lighter oil is subject to higher decline rates, about 26%. Merger will see lots of synergies. Digesting debt. Hesitant to own for short term.
See her Top Picks.
He had a massive position in Veren before WCP "stole" (bought) it. He was very excited about Veren's asset base. However, he is neutral oil now, so doesn't own WCP (prefers natural gas stocks). But he sees massive value in WCP. Are paid an 8.6% dividend yield, which is sustainable to low-$50s oil. Is upside here. Trades at 4x cash flow. At $70 oil, it will trade at a 5x multiple and shares will cost $14.
Loves the new combination of WCP + VRN -- very synergistic, strong free cashflow, increased scale. Doing some asset sales, which will pay down debt and improve balance sheet. 3% lower capex is prudent in this tougher environment for oil.
Bad news is that it'll move as oil moves, and oil's in a tough place here. Trump will want to see oil prices lower, and the Saudis will want to play along with him. This stock works now, but will be a tough place if oil comes down a lot.
There are a lot of choices in the sector. He wants the technical picture to be as supportive as the fundamental picture. Possible that the theme is going to pick up steam. He isn't a value investor, buying cheap and hoping it'll get less cheap. He wants to buy companies recognized as the leaders in their group.
He'd skew toward ARX, as it's the best-run intermediate O&G company in Canada. On most fundamental metrics, WCP is cheaper. It depends on your own investing style. He's often willing to pay up for management that he considers superior. In a 5-10 year timeframe, you can't go wrong with either.
Broke below the March low, an indication that it's going lower. Barring a dramatic reversal in the price of natural gas, which it's tilted more towards, it's probing lower. Going back on a 3-year chart, no place to hang your hat yet.
Lots of damage in last 2 days. There's a lot of value there, but you have to wait to see where to step in. All of energy will be wait and see.