Ovintiv Inc. (OVV) Update - April 19

[dan_s]

At the time of this post OVV was trading at $54.50.

I have updated my forecast/valuation model for OVV, raising natural gas and NGL prices. My valuation increases by $4 to $80 per share and my valuation is based on just 4.5 X annualized operating cash flow per share.

If Q1 results and their updated guidance confirm my forecast model assumptions, a higher valuation multiple should be justified.

Ovintiv is a large-cap with close to 500,000 Boepd of production. I really like the production mix: 48.5% natural gas, 16.5% NGLs, 25.5% crude oil and 9.5% plant condensate that sells at a premium to the crude oil price.

TipRanks: Since 3/23/2022 five analysts have adjusted their price targets to $58 (by Barclays which is based on much lower commodity prices), $65, $68, $78 and $82.

Here is why I am so bullish:
2020 Actuals: Revenues of $4.854 billion and $1.929 billion operating cash flow ($7.42/share)
2021 Actuals: Revenues of $6.063 billion and $3.170 billion operating cash flow ($12.29/share)
My 2022 Forecast: Revenues of $8.553 billon and $4,800 billion operating cash flow ($19.20/share)
My 2023 Forecast: Revenues of $9.129 billion and $5.005 billion operating cash flow ($20.43/share) < based on realized prices of $4.25/mcf for natural gas, $28/bbl for NGLs, $80/bbl for crude oil and $83/bbl for plant condensate

Operating cash flow of $4.8 billion this year compares to their capex budget of $1.5 billion. This is a free cash flow machine!

I expect their production to be down from Q4 to Q1 due to weather related issues by ~11,000 Boepd and then ramp up steadily into year-end. Might result in a buying opportunity when they announce Q1 results on May 9.