Technology

Why Is Cenovus (CVE) Down 6% Since Last Earnings Report?

A month has gone by since the last earnings report for Cenovus Energy (CVE). Shares have lost about 6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cenovus due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cenovus Q2 Earnings Beat on Higher Crude Production

Cenovus Energy reported second-quarter 2020 loss per share of 25 cents, narrower than the Zacks Consensus Estimate of a loss of 44 cents. In the prior-year quarter, the integrated energy firm reported earnings of 16 cents per share. 

Revenues of $1,568 million missed the Zacks Consensus Estimate of $1,967 million. Moreover, the top line declined from the year-ago figure of $4,431 million.

The leading energy firm’s better-than-expected quarterly earnings were primarily because of higher oil sand production, and lower transportation and blending expenses. However, the positives were partially offset by lower realized commodity prices. Also, the coronavirus pandemic hurt global energy demand, which in turn dented refining margins and prompted crude to trade in the bearish territory. Thus, the virus outbreak hurt Cenovus Energy’s overall business in the June quarter.

Operational Performance

Quarterly gross revenues from the Oil Sands unit fell to C$1,065 million from C$3,030 million in second-quarter 2019. In the June quarter, the company recorded daily oil sand production of 373,189 barrels, up 8% year over year.

Notably, the segment’s operating loss was C$274 million against the year-ago quarter’s profit of C$678 million owing to higher fuel expenses and lower realized crude prices.

Gross revenues at the Conventional unit were C$133 million, down from C$150 million in the year-ago quarter. In the June quarter, the company recorded daily liquids production of 26,861 barrels, up 2% year over year.

The segment’s operating loss came in at C$48 million compared with a loss of C$53 million in the year-ago quarter due to lower transportation and blending, as well as operating costs.

The Refining and Marketing segment generated gross revenues of C$1,088 million, down from C$2,849 million a year ago. Moreover, the unit’s operating profit was C$61 million compared with C$130 million a year ago.

Expenses

Transportation and blending expenses in the reported quarter decreased to C$663 million from C$1,354 million a year ago. Moreover, expenses for purchased products fell to C$761 million from C$2,237 million in the prior-year quarter. Operating costs in the quarter were C$437 million, down from the year-ago level of C$530 million.

Capital Expenditures & Balance Sheet

The company incurred total capital expenditure of C$147 million in the quarter under review.

As of Jun 30, 2020, the Canadian energy player had cash and cash equivalents of C$152 million, down from C$160 million at first quarter-end. Total long-term debt of C$8,085 million surged from C$6,979 million at the end of the March quarter. Its total debt to capitalization was 31.8%.

Outlook

The company expects the energy market to remain volatile in the short term. Early recovery in oil prices helped Cenovus to restore some of the curtailed production. In early July, it resumed 60,000 bpd of paused production. From upstream operations, the company expects 2020 output within 432-486 thousand barrels of oil equivalent per day.

It has taken several decisive measures like dividend suspension, pushing the limits of operating efficiencies and capital budget reduction to decrease cash outlay for 2020 by $1 billion. The company expects 2020 upstream capital in the range of C$435-C$495 million. Capital expenditure in refining and marketing & transportation operations will likely be C$240-C$265 million and C$30-C$35 million, respectively.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 45% due to these changes.

VGM Scores

At this time, Cenovus has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cenovus has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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