Friday, UBS upgraded shares of Cenovus Energy Inc . (NYSE:CVE) from Neutral to Buy. The firm anticipates that the energy company will deliver materially higher shareholder returns in the second half of 2024 once it achieves its net debt target of $4 billion. According to UBS, Cenovus is not currently receiving appropriate credit for this prospective financial improvement.
Cenovus Energy's potential for increased earnings before interest, taxes, depreciation, and amortization (EBITDA) was highlighted by UBS, with the startup of the Trans Mountain Expansion (TMX) project expected to add $1 billion to the company's upstream EBITDA. This increase is attributed to anticipated narrower crude spreads. Additionally, the firm projects a 13% growth in upstream volumes by 2028.
UBS noted that over the past year, Cenovus Energy's stock has not performed as well as its peers in the Oil Sands and Mid-Continent refining sectors. This underperformance was attributed to three main factors: weaker downstream earnings, relatively lower shareholder returns, and a slower pace of debt reduction than the market had anticipated. However, these issues are now considered to be resolved.
Following the fourth quarter of 2023 earnings report, market expectations for Cenovus's U.S. refining operations have been reset. UBS believes that the company's revised earnings estimates are achievable, suggesting a more optimistic outlook for Cenovus's financial performance moving forward.
The upgrade by UBS reflects a positive shift in expectations for Cenovus Energy's financial trajectory and its ability to generate value for shareholders in the near future.
InvestingPro Insights
As UBS upgrades Cenovus Energy Inc. (NYSE:CVE) to a Buy rating, real-time data and insights from InvestingPro provide additional context to the company's financial landscape. Cenovus's market capitalization stands at a robust $32.96 billion, and the company has a price-to-earnings (P/E) ratio of 11.02, which adjusts to 10.62 when considering the last twelve months as of Q4 2023. This indicates a potentially attractive valuation for investors.
The company's strong commitment to shareholder returns is underscored by an InvestingPro Tip highlighting that Cenovus has raised its dividend for three consecutive years, and has maintained dividend payments for 16 consecutive years. This consistency is coupled with a dividend yield of 2.36% and a significant dividend growth of 33.89% over the last twelve months as of Q4 2023, signaling a positive outlook for income-focused investors.
Another InvestingPro Tip points out that analysts predict the company will be profitable this year, which aligns with UBS's optimistic view on Cenovus's financial performance. Additionally, the company's recent price total return over one month has been strong at 16.17%, reflecting a robust short-term performance that may interest momentum investors.
For those seeking a deeper dive into Cenovus Energy's financial health and future prospects, InvestingPro offers a wealth of additional tips. In fact, there are 11 more InvestingPro Tips available for Cenovus, providing a more comprehensive analysis. To access these insights and optimize your investment strategy, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
With the next earnings date set for April 24, 2024, investors will be watching closely to see if Cenovus can meet the heightened expectations set by UBS and other market analysts. The InvestingPro platform, with its real-time metrics and expert tips, can be a valuable resource for those looking to stay informed on the company's progress.
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