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Stock Analysis & Ideas

Ovintiv Stock: Well-Positioned for Its Upcoming Earnings Report

Story Highlights

Ovintiv is all set to report earnings, and investors are eager to see how the company has performed. Ovintiv is in a great position heading into earnings and has a strong operating model. Shareholders should benefit from its long-term growth potential, and analysts seem to believe so as well.

Hydrocarbon exploration and production company, Ovintiv (OVV), seems like a great discount play in the current environment. In addition, the company is paring down debt, increasing its dividend, and has sold a non-core asset. Long story short, it has been making all the right moves before it reports earnings after market close on August 3. I am bullish on OVV stock.

The decline in high-flying energy stocks from their peak in June is a major trend change. Many of these stocks are down by about 20% or more in a short period, making them attractive to investors – especially considering high energy prices.

Ovintiv Has a Well-Oiled Business Model

Ovintiv invests in high-quality assets with significant long-term growth potential and wants to optimize for cash-flow generation while maintaining a healthy balance sheet. The company’s business model is now more robust due to substantially decreasing its debt. Long-term loans decreased from $6 billion in 2020 to $4.775 billion for the latest quarter. Ovintiv expects the trend to continue as it pours significant capital into technological innovation, leading to a bonanza in free cash flow.

Ovintiv is a premier developer in the oil & gas industry, primarily focusing on drilling operations throughout Texas’ Permian basin and Oklahoma’s Anadarko Basin. It also has interests across Canada that contain abundant hydrocarbon deposits not yet developed for production purposes but suitable enough if you know how to get to them.

The company plans to invest $1.7 billion to $1.8 billion in capital projects in 2022, an uptick from what it invested a year ago. While the production target will likely remain at the same level as last year, its main focus will be maintaining capital discipline and returning cash to shareholders.

OVV’s management reported a 269% reserve replacement ratio for 2021. Oil companies are judged by their reserve-replacement ratios. They indicate how much oil companies have in reserves that can be pumped out for production if necessary.

This is the most relevant data point about Ovintiv’s reserves, which shows that they grew in 2021, and management plans on growing them even more next year. The approach has helped Ovintiv become a cash flow machine. The company’s success is due in part to its innovative approach to oil & gas exploration, which has yielded significant discoveries.

OVV’s total asset value is around 540,000 barrels per day (Mboe/d). The company plans to implement efficiency measures to cut costs while focusing more heavily on ESG practices for sustainability purposes.

Also, on July 6, Ovintiv inked an agreement to dispose of portions of its assets for about $250 million in the Bakken and Uinta basins to generate more shareholder returns.

Ovintiv’s Dividend Growth is Too Good to Ignore

Ovintiv pays quarterly dividends to investors, and its forward dividend yield is about 2%. Its board of directors voted to raise the company’s dividends by 43% in February and confirmed another 25% increase the following quarter.

Ovintiv is on fire. The stock has increased by about 90% in one year, and when you combine that with growing dividends, the potential for an amazing investment comes into focus.

OVV is likely a good investment for those in the pursuit of dividend-growth plays. This company has a decent dividend yield and an impressive record of paying those dividends.

What are Ovintiv’s Risks?

Any firm in the industry of oil production needs to be wary of the risk of volatile commodity prices. Regulatory risks also remain an ever-present concern. The global objective of reducing carbon-based energy is a significant risk for Ovintiv, as it makes up the vast majority of its sales. Oil demand could peak worldwide over the next few years as countries come together to battle climate change.

Nonetheless, OVV can reduce methane emissions and is doing a great job. The company is already 50% closer to its goal, achieving it four years ahead of schedule. There have also been significant drops in both its carbon dioxide and venting operations.

Wall Street’s Take on Ovintiv Stock

Ovintiv holds a Strong Buy consensus rating on Wall Street based on 12 Buys assigned in the past three months. The average price target for Ovintiv stands at $68.08 per share, implying 40% upside potential from its current price.

Conclusion: Consider OVV Stock Before It Reports Earnings

Overall, Ovintiv appears to be an excellent investment for those looking to diversify their portfolio. The company’s strong operating model has generated consistent growth and profitability. Ovintiv also pays regular dividends, making it an attractive option for income-seeking investors. It is a good stock to consider before it reports earnings.

Global oil demand is expected to grow as economies restart after the COVID-19 pandemic. In addition, due to the Russian energy supply disruption, the price of oil should remain elevated for some time. Ovintiv surpassed its net debt target this year thanks to a high oil price. This means it should have a lot of money to spend on dividends, further boosting shareholder returns.

Disclosure 

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