Canadian Natural Resources Ltd. (CNQ, Financial) has pivoted well as it's now in a position where it can take advantage of both fossil fuels and renewable energy. The company has paid attractive dividends over the past 21 years as its increased its payout ratio year over year.
Earnings
The company once again beat earnings estimates in its first-quarter report with a revenue beat of $699.78 million and an earnings beat of 2 cents per share. The oil and gas giant has estimated a 6% increase in barrels of oil equivalent per day for this current year. I suspect the company's top line will continue increasing with oil prices looking as though they may even reach the $100 mark combined with a shortage of supply.
Source: Seeking Alpha.
Canadian Natural Resources' free cash flow and working capital have increased significantly over the past year and if it should continue to do so, then additional dividends or share buybacks might be executed.
Efficiency
Inventory turnover has improved consistently since 2017 as the company has streamlined its inventory management. Many of the company's metrics that did well pre-Covid have lagged during operating restrictions.
For instance, by studying the cost of goods sold to the revenue, we can expect a retracement as the crude price has increased. We can also expect factors such as days receivables to improve as there will be less leeway given to the buyers during improved economic conditions.
Merger and acquisition activity will increase efficiency and economic performance. The company acquired Athabasca Oil Sands in 2017, $3.8 billion of assets from Devon energy in 2019 and merged with Painted Pony Energy in 2020. Synergies are yet to fully recognized, which will provide momentum to the stock price.
Valuation
According to TipRanks, WallStreet sees an upside of roughly 21% over the next 12 months. My justified forward price-earnings target indicates a 51% upside. Investors should note that the price of crude oil and the stock's performance will be highly correlated, hence the wide dispersion in the price targets.
Final word
Canadian Natural Resources has seen more than 100% upside over the past year, but has still underperformed the S&P 500 by more than 7 times over the past 10 years. Increasing oil prices, M&A activity and improved efficiency could see further stock price momentum. The price will be heavily reliant on what the company decides to do with its excess cash reserves.
