Ovintiv (OVV) Valuation Update - Feb 28

[dan_s]

At the time of this post OVV was trading for $47.13.

I have updated my forecast/valuation model for the Company's outstanding Q4 2023 results that beat my production forecast by a wide margin. Adjusted operating cash flow for the year was $14.35/share. This stock should trade for at least 4X operating CFPS.

They provided detailed 2024 guidance that once again looks very conservative, but I am using it in my model.
My valuation increases by $3 to $65/share. < Five energy sector analysts have submitted updated price targets to TipRanks ($50 to $60) this morning and they all rate the stock a BUY.

The Company's 2024 plan is to focus more drilling on oil prone areas. Production is expected to be flat to 2023 (~562,000 Boepd), but the drilling program is designed to improve the mix to more oil.

Ovintiv should generate $1.6 to $2.0 billion of free cash flow in 2024, so I expect them to increase their dividends, lower debt and buyback more stock. All three increases the value of the stock.

OVV is a bit "gassy" but their hedging program and higher NGL prices should offset some of the pain of lower Ngas prices. If natural gas prices does move back over $3.00 in 2025, there is a lot of upside for this large-cap. It has a deep inventory of high-quality development drilling locations.