Canadian Natural Resources - A Strong Buy - Analyst Blog

On May 27, Zacks Investment Research upgraded Calgary, Alberta-based independent oil and gas explorer Canadian Natural Resources Ltd. CNQ to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Canadian natural Resources' large reserve base, long-life resources, steady production growth, disciplined capital allocation and sustainable free cash flows make it a great stock to own.

Detailed Analysis

Canadian Natural Resources has a broad portfolio of low-risk exploration and development projects that yield long-term volume growth at above-average rates. The company's diverse asset base both geographically and in terms of products – comprising approximately 30% natural gas and 70% crude oil with the bulk of production located in G8 countries – significantly reduces its risk profile and lends the results a high level of stability.

In addition to the conventional oil and gas production assets, Canadian Natural is also a major oil sands player with several projects in inventory. The company achieved a significant milestone in Feb 2009 when it started the Horizon oil sands program. Production of Synthetic Crude Oil SCO from the project has averaged more than 100,000 barrels per day (Bbl/d) in 2013. The company expects annual production to eventually ramp up to 500,000 Bbl/d by the next decade, thereby significantly augmenting Canadian Natural's long-term production growth profile.

Canadian Natural Resources has recently bought certain liquids-rich natural gas properties in western Canada from Devon Energy Corp. DVN. The assets hold an estimated 272.2 MMBOE in proved reserves (70% gas) and will likely boost growth in core areas, with scope for further improvement.    

Finally, Canadian Natural Resources displays a healthy financial position, reflected by a debt-to-capitalization ratio of 28.2%, making the company less susceptible to financial risks. Backed by this strength, management has hiked dividend for 14 consecutive years.

Other Stocks to Consider

Apart from Canadian Natural Resources, investors interested in the energy industry may consider stocks like Athlon Energy Inc. ATHL and Encana Corp. ECA. Both these stocks carry a Zacks Rank #1 (Strong Buy).