BMO Upgrades Cenovus Amid Stronger Oil Prices

Canadian integrated oil company Cenovus Energy Inc CVE is likely to see some relief from rising oil prices, according to an analyst at BMO Capital Markets.

The WTI grade of crude oil has seen its price increase by about 19 percent in the year-to-date period to $71.49 as of May 16.

The Analyst

Analyst Randy Ollenberger upgraded Cenovus from Market Perform to Outperform and increased his price target from $15 to $17.

The Thesis

Stronger oil prices are likely to help repair Cenovus' balance sheet, especially as "the low oil price hedges roll off" over the rest of 2018, Ollenberger said in a Thursday note.

Accordingly, the analyst narrowed his 2018 bottom-line estimate from a loss of 40 cents per share to a loss of 39 cents per share, and increased his 2019 earnings estimate from $1.09 to $1.11.

Ollenberger also hiked his 2018 cash flow per share estimate from $1.65 to $1.66 and 2019 estimate from $2.89 to $2.91. Production estimates were left unchanged.

Buoyed by the lower-priced hedges beginning to dissipate, and higher production, the analyst said the company is likely to generate about $5.8 billion in surplus cash flow over the 2018-2022 period.

"We believe that rising free cash flow and a deleveraged balance sheet could support a positive re-rating of Cenovus's valuation multiples," BMO said.

The Price Action

The U.S.-listed shares of Cenovus have gained about 20 percent in year-to-date. At time of writing, shares were up 2.8 percent to $11.18.

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