Ovintiv Inc. (OVV) Update - June 13

[dan_s]

At the time of this post OVV was trading at $38.92, which compares to First Call's price target of $55.06.

Neal Dingmann at Truist Financial updated his price target to $61.00 based on the following comments from his report.

Permian Deal Closes Paving Way for Continued Solid Shareholder Return

Ovintiv announced the closing of its recent Permian acquisition ahead of schedule, allowing
the company to quickly get to work integrating the properties. In conjunction with the
deal close, OVV updated its financial guidance that was roughly in-line with our forecasts,
but better than the Street was expecting, namely on the capex side. The company also
announced slight tweaks to its acquisition/divestiture costs due to customary closing
adjustments.

Guidance Updates
• 2Q23 total production of 520-540 mboepd versus Truist Securities/Street estimates of 534/523 mboepd
• 2Q23 oil & condensate production of 175-179 mbblpd versus Truist Securities estimates of 178 mbblpd
• 2Q23 capex of $670-710mm versus Truist Securities/Street estimates of $692mm/$627mm
• FY23 total production of 521-546 mboepd versus Truist Securities/Street estimates of 542/538 mboepd
• FY23 oil & condensate production of 186-196 mbblpd versus Truist Securities estimates of 191 mbblpd
• FY23 capex of $2,680-2,980mm versus Truist Securities/Street estimates of $2,775mm/$2,913mm

• FY24 oil & condensate production of >200 mbblpd versus Truist Securities estimates of 202 mbblpd
• 2H24 oil & condensate production of 200 mbblpd versus Truist Securities estimates of 199 mbblpd
• FY24 capex of $2.1-2.5b versus Truist Securities/Street estimates of $2,353mm/ $2,413mm

Updating Estimates, Reiterating PT of $61
Today’s update was largely in-line with our estimates which assumed the deal would close
mid-June, with the only notable tweaks being a lower FY24 capex program and slightly
higher 2H24 oil & condensate volumes than we were expecting. We have updated our
estimates for the earlier than expected deal close, along with a more pronounced ramp in
oil and condensate production along with lower capex assumptions in FY24. Our $61 price
target is derived from two equally weighted methodologies, with the first being our 2024
EV/EBITDAX multiple of 4.0x (3.4x peer group average) applied to our 2024E EBITDAX
estimate of $5,760MM ($4,654MM consensus) and the second being a FCF/EV Yield
assumption of 13.0%.

I have updated my forecast/valuation model for OVV and it will be posted to the EPG website this afternoon. My valuation moves lower by $1 to $63.00 because the Company's initial production guidance for 2024 is 10,000 Boepd lower than my previous forecast.
OVV (previous named EnCana) is a large-cap that does not get the coverage it deserves. Current production is over 550,000 Boepd, it is free cash flow positive (over $1billion based on the fresh guidance), it pays a dividend and is also funding a stock repurchase program. My valuation is just 4X annualized operating cash flow, which is a low multiple for a company of this size. It is a bit too "gassy", but after 2024 that should be a big plus.

TipRanks 6/12/2023: Nitin Kumar CFA with Mizuho Securities also updated his valuation to $62.00. Nitin has a 5-Star rating at TipRanks.