Ovintiv Inc. (OVV) Valuation Update - Feb 28

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dan_s
Posts: 34964
Joined: Fri Apr 23, 2010 8:22 am

Ovintiv Inc. (OVV) Valuation Update - Feb 28

Post by dan_s »

Yesterday, Ovintiv reported Q4 results in line with my forecast. They also provided production and capex guidance for 2023, which raises the confidence that I have in my forecast model.

At the time of this post OVV was trading at $43.07.

I am raising my valuation of OVV by $6.50 to $71.50/per share, based on just 4X annualized operating cash flow per share.

I have followed this company for many years.
> Ovintiv (formerly EnCana) is a large upstream company that produced 523,600 Boepd in Q4 (up from 499,900 Boepd in Q1 2022).
> Approximately 82% of 2023 revenues will come from the sale of liquids.
> Their production guidance for 2023 is 500 to 525 MBoepd, but I am using 521,000 Boepd in my forecast because they have a long history of beating their guidance.
> The low end of the guidance range would only happen if they significantly reduced their drilling program. That should only happen if there is a big drop in oil prices.
> The balance sheet is in good shape with no near-term debt issues.
> They have lots of "running room" in their 3 core areas (Anadarko Basin, Permian Basin and Montney in Canada).

Based on my 2023 forecast, Ovintiv should generate over $3.9 billion this year in operating cash flow and $1.6 to $1.8 billion in free cash flow. 50% of free cash flow is used to pay base dividends of $0.25/quarter and fund an aggressive stock buyback (retiring 5% to 10% of their common stock each year). If oil & gas prices do go up, I expect the Company to increase their base dividend or announce a "fixed + variable" dividend program.

TipRanks: "In the last 3 months, 9 ranked analysts set 12-month price targets for OVV. The average price target among the analysts is $59.00. The 9 price targets range from $51 to $71."
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34964
Joined: Fri Apr 23, 2010 8:22 am

Re: Ovintiv Inc. (OVV) Valuation Update - Feb 28

Post by dan_s »

From RBC Capital 3-1-2023

Rating: Sector Perform
Price Target: 57.00
Our view: With its formula-driven shareholder returns model in motion, Ovintiv’s
buybacks should glide higher in the quarters to come, but we would also like to see
its balance sheet deleverage faster. We are maintaining a Sector Perform rating on
Ovintiv and trimming our one-year target price by $1 to $57 per share.
Dan Steffens
Energy Prospectus Group
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