Cenovus Energy (TSX:CVE) stock is on a tear this year. Up 11.9% year to date, outperforming the TSX Index, which is only up 3.8%. CVE has a higher dividend yield than the index, too!
It’s not hard to understand why CVE stock is rallying. The price of oil has been inching upward in the second half of 2023, thanks to massive production cuts by Saudi Arabia and Russia. Because of these cuts, oil and gas are on the rise.
Most oil companies stand to benefit when the price of oil rises. However, Cenovus Energy is uniquely well positioned to capture some of the rising profits. As a pure play exploration and production (E&P) company, it profits more directly off of oil price rises than pipelines and refiners do. In this article, I will explore some reasons why Cenovus is profiting from higher oil prices in 2023.
Why oil prices are rising
The main reason why oil prices are rising this year is because the entire Organization of Petroleum Exporting Countries (OPEC) is cutting output. That includes OPEC+ nations like Russia, which aren’t part of the original group of Middle Eastern nations. Saudi Arabia and OPEC began cutting oil output earlier this year. Initially, Russia didn’t go along with the plan, so oil prices basically flatlined. Lately, however, Russia has been complying. As a result, the world’s oil supply is being drastically curtailed, while the demand slowly increases.
CVE profited off high oil prices in 2022
In 2022, Cenovus Energy made big profits off of the high oil prices observed that year, particularly in its first half. For the full year, CVE delivered:
- $11 billion in cash from operations, up 93%.
- $10.9 billion in adjusted funds flow, up 51%.
- $7.2 billion in free funds flow, up 55%.
- $6.5 billion in net income, up 999%.
- $3.20 in diluted earnings per share (EPS), up 1,100%.
It was a great showing. Every single earnings metric grew by double or triple digits. On top of that, the company paid down $5.3 billion worth of debt, a more than 50% reduction! It was a banner year for Cenovus in 2022.
Is CVE poised to profit?
Having explored Cenovus’ blockbuster 2022 results, it’s time to ask the question:
Can the company repeat the feat this time around?
Nothing is ever certain except in hindsight. Oil prices are notoriously hard to predict, some would say unpredictable. However, it does look like Cenovus has the foundation in place for a pretty good year in 2023. Oil prices are quite high right now, and Cenovus paid off a lot of debt last year, meaning that the ‘interest’ part of the expenses side is now lower than it was previously. It’s possible that OPEC will abruptly reverse course on oil prices, but on the whole, Cenovus looks set to have a good year in 2023. That doesn’t mean that its stock price will necessarily rise, but it looks quite likely that the dividend, at least, is safe for the time being.
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* Returns as of 8/16/23
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