Ovintiv Inc. (OVV) Valuation Update - Dec 21

[dan_s]

I have updated my forecast/valuation model for OVV, breaking out 2025 by quarter and adding the forecast for 2026.

OVV is a great way to add more exposure to natural gas.
> Q4 2024 production will be ~585,000 Boepd.
> Two significant transactions will close in Q1 2025: Selling Unita Basin assets for $2 billion (29,000 Boepd) and buying Paramount Montney package for $2.4 billion, adding 70,000 Boepd (~25,000 bpd of oil).
> Q2 2025 production should be ~630,000 Boepd with a mix of approximately 49% natural gas, 16% NGLs, 7.5% Plant Condensate and 27.5% crude oil.

All of Ovintiv's hedges are collars with ceilings above my oil and gas price deck. Floors are $65 for oil and $3.00 for natural gas, so if WTI and HH NGas prices are near my forecast the hedges won't impact operating cash flow in 2025.

Using what I believe is a conservative multiple of 4X Operating Cash Flow per share, my current valuation is $68/share.

OVV closed at $37.78 on December 20th.

TipRanks: "In the last 3 months, 15 ranked analysts set 12-month price targets for OVV. The average price target among the analysts is $56.43. The 15 price targets range from $42 to $70."

Today TipRanks' operating CFPS forecasts are $14.80 for 2024, $14.91 for 2025 and $15.94 for 2026. 4X TipRanks' average CFPS is $60.87.

[dan_s]

Overall, OVV ranks 2nd on our list of one of the most undervalued natural gas stocks to buy according to analysts.

Yahoo Finance: https://finance.yahoo.com/news/why-ovintiv-ovv-one-most-133404524.html

It is very important that you know the production mix and the hedges that each company has in place for 2025. With natural gas prices rising next year, a lot of money managers will be looking for upstream companies that produce a lot of gas.

You can find that valuable information on the bottom of each companies forecast model.

[dan_s]

OVV closed at $41.79 on Friday, Jan. 3

My current valuation is $68.00, using a valuation multiple of just 4X annualized operating CFPS for 2024 through 2026.

It is clear to me that most of the Wall Street Gang has not yet adjusted their models for the two "Transformational" transactions that Ovintiv will be closing in Q1 2025 that will increase the Company's production by ~45,000 Boepd from Q4 2024 to Q2 2025.

One of the Gang has adjusted his model and his price target.
On 1-3-2025 Doug Leggate at Wolfe Research submitted a new detailed report to TipRanks. He has raised his price target by $5 to $70 per share.

Doug is one of 16 energy sector analysts that follow OVV. The average of the 16 price targets is $57.33, ranging from $42 to $70.

If Ovintiv's Q4 results and guidance for 2025 confirm my forecast model assumptions, this stock should be getting multiple upgrades soon.

Ovintiv should generate over $1.7 billion of free cash flow in 2025.