Ovintiv Inc. (OVV) Valuation Update - Feb 28
Posted: Tue Feb 28, 2023 2:05 pm
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."
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."