Citi Reaffirms Buy On Canadian Natural Resources Following Analyst Meeting

Citi has reaffirmed its Buy rating on Canadian Natural Resource Ltd (USA) CNQ following its annual analyst meeting at which the company said it now expects production to increase about 25 percent by 2019 (8 percent CAGR).

"The clear emphasis was on the massive wall of free cash flow ahead which should approach C$1.4 billion in 2017, ~C$3.0 billion in 2018 and then C$3.3 billion annually starting in 2019 at $60/Bbl & $3.00/GJ AECO prices," analyst Robert Morris wrote in a note.

Morris noted that CEO Steve Latut described the company's situation as having the "best of both worlds." The company has significant free cash from long-life, low-decline assets by the end of next year (<12 percent overall base decline rate).

Canadian Natural also has a high-quality contiguous resource base to allocate capital with 365 MBbl/d and 1.7 Bcf/d that could come on line and top the company's 15 percent IRR hurdle rate at $50/Bbl and $2.00/GJ.

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"Mgmt. also repeatedly mentioned that the Street doesn't fully appreciate CNQ's opportunity base and shareholder commitment with it being one of five E&Ps to not cut its dividend while retaining an Investment Grade credit rating and not issue equity," Morris added.

The company noted that even at $48/Bbl WTI, Canadian Natural will attain its long-term leverage target of 1.8x–2.2x by 2019 (vs. 2017 at $60/Bbl).

Morris also narrowed his 2016 loss forecast to $0.28 from $0.48 and raised 2017's earnings forecast by $0.10 to $1.66 a share.

At time of writing, shares of Canadian Natural rose 2.23 percent to $29.34. The analyst also raised his price target to $34 from $28.63.