Cenovus Energy: Zacks’ Bear of the Day Play

Cenovus Energy (CVESnapshot Report) has seen significant downgrades over the past 30 days.  This Zacks Rank #5 (Strong sell) has had its estimates massively trimmed for the next two quarters and for Fiscal Year 15 and Fiscal Year 16.

Over the past 30 days earnings estimates have just collapsed; Q1 15 dropped from $0.17 to -$0.24, Q2 15 fell from $0.17 to -$0.10, and Fiscal Year 15 decreased from $0.18 to -$0.19, and Fiscal Year 16 plunged from $0.62 to $0.12.

The major driver behind the downgrades was the poor performance in the downstream results which saw a negative cash flow of $322 million because of lower market crack spreads, and much narrower heavy oil differentials.  To further the matter, the company took a $110 million write-down on its refined product inventory.  This caused the company to post a 59% decrease in cash flows quarter over quarter.  Margins also contracted during the quarter, and are expected to continue to contract due to the downstream segment of the company.

Cenovus Energy is an integrated oil company headquartered in Calgary Alberta Canada.  The company’s operations include their enhanced oil projects and natural gas and crude oil production in Alberta and Saskatchewan.  The company has four enhanced oil projects; Foster Creek, Christina Lake, Pelican Lake, and Weyburn.

EPS Estimates Table

The table below shows the EPS consensus estimates correlated with the stock price.  As you can see the price and estimates have been declining for some time now.  Mainly due to suppressed oil prices, this trend is expected to continue to have a negative effect on cash flow throughout 2015 and potentially into 2016.

Valuation

Revenues have been a drag on this company for the past two quarters (not surprising that this correlates with the big drop in oil prices) which saw an 11.7% QoQ decline in Q3 14, and then a 24.1% decline in Q4 14.  Further, EBITDA was also massively hit over the past two quarters with a Q3 decline of -35.6%, and fell off the cliff in Q4 by dropping 99% QoQ.

Bottom Line

Oil has been hit hard over the past 2 plus quarters, and there is not much relief in sight.  Therefore, it would be wise to stay away from this Integrated oil company for the near, and short terms, or until oil begins to bounce back to historic norms.

Other Stocks to Consider

If you are inclined to invest in the Integrated Oil segment, there is Interoil Corp (IOCSnapshot Report) which holds a Zacks Rank #2 (Buy).  The remaining stocks in this segment have either a Zacks Rank #4 (Sell), or a Zacks Rank #5 (Strong Sell).

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