Canadian Oil & Gas Stocks

Canadian Natural Resources Ltd Valuation – August 2018 $TSE:CNQ

Company Profile (excerpt from Reuters): Canadian Natural Resources Limited, incorporated on January 6, 1985, is an independent crude oil and natural gas exploration, development and production company. The Company’s segments include Exploration and Production, Oil Sands Mining and Upgrading, and Midstream. The Exploration and Production segment includes exploration, development, production and marketing of crude oil, natural gas liquids (NGLs) and natural gas. The Company’s exploration and production operations are focused in North America in Western Canada, the United Kingdom portion of the North Sea, and Cote d’Ivoire, Gabon and South Africa in Offshore Africa. The Horizon Oil Sands Mining and Upgrading segment (Horizon) produces synthetic crude oil (SCO) through bitumen mining and upgrading operations. Midstream activities include the Company’s pipeline operations, an electricity co-generation system and an investment in the North West Redwater Partnership (Redwater Partnership). As of December 31, 2016, the Company’s gross proved crude oil, bitumen (thermal oil), SCO and NGLs reserves totaled 4,866 million barrels (MMbbl), and the Company’s gross proved plus probable crude oil, bitumen (thermal oil), SCO and NGLs reserves totaled 7,667 MMbbl. At December 31, 2016, the Company’s gross proved natural gas reserves totaled 6,617 billion cubic feet (Bcf), and the Company’s gross proved plus probable natural gas reserves totaled 9,076 Bcf.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CNQ – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $57,962,720,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.01 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -1.11% Fail
6. Moderate PEmg Ratio PEmg < 20 25.31 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.78 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.01 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 367.83 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.83
MG Growth Estimate -4.09%
MG Value $0.57
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $26.51
MG Value based on 0% Growth $15.54
Market Implied Growth Rate 8.41%
Current Price $46.27
% of Intrinsic Value 8065.13%

Canadian Natural Resource Ltd (USA) does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.51 in 2014 to an estimated $1.83 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.41% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Canadian Natural Resource Ltd (USA) revealed the company was trading above its Graham Number of $45.09. The company pays a dividend of $1.1 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 25.31, which was below the industry average of 59.52, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-29.89.

Canadian Natural Resource Ltd (USA) scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$29.89
Graham Number $45.09
PEmg 25.31
Current Ratio 1.01
PB Ratio 1.78
Current Dividend $1.10
Dividend Yield 2.38%
Number of Consecutive Years of Dividend Growth 18

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $4,386,000,000
Total Current Liabilities $4,328,000,000
Long-Term Debt $21,334,000,000
Total Assets $73,214,000,000
Intangible Assets $0
Total Liabilities $41,188,000,000
Shares Outstanding (Diluted Average) 1,231,336,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.49
Dec2017 $2.03
Dec2016 -$0.19
Dec2015 -$0.58
Dec2014 $3.58
Dec2013 $2.08
Dec2012 $1.72
Dec2011 $2.40
Dec2010 $1.53
Dec2009 $1.46
Dec2008 $4.61
Dec2007 $2.42
Dec2006 $2.35
Dec2005 $0.98
Dec2004 $1.30
Dec2003 $1.27
Dec2002 $0.54
Dec2001 $0.65
Dec2000 $0.81
Dec1999 $0.24
Dec1998 $0.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.83
Dec2017 $1.13
Dec2016 $0.89
Dec2015 $1.57
Dec2014 $2.51
Dec2013 $1.93
Dec2012 $2.02
Dec2011 $2.28
Dec2010 $2.30
Dec2009 $2.58
Dec2008 $2.87
Dec2007 $1.89
Dec2006 $1.51
Dec2005 $1.04
Dec2004 $1.02
Dec2003 $0.82
Dec2002 $0.55

Recommended Reading:

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Canadian National Resources Ltd Valuation – Initial Coverage $TSE:CNQ

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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