On Wednesday, Barclays began coverage on shares of Ovintiv Inc. (NYSE:OVV), issuing an Overweight rating and setting a price target of $69.00. The firm highlighted Ovintiv's sustainable free cash flow generation and its attractive North American resource base, noting these factors are available at a significant valuation discount.
The firm pointed to the Encap transactions completed in 2023 as pivotal in extending Ovintiv's inventory runway in the Permian Basin, which had previously been a factor in the company's lower valuation. Barclays observed that Ovintiv has demonstrated strong execution on the acquired assets, positioning the company for a favorable risk-reward scenario given its projected above-average cash flow per debt-adjusted share growth.
According to Barclays, Ovintiv stands out among exploration and production companies with one of the highest organic free cash flow yields, estimated at 15% for 2024 and 15.8% for 2025. These figures surpass the large-cap peer average of approximately 11.7%/11.8% at strip prices. The firm also noted Ovintiv's underappreciated resource base in North America, which includes around 17 years of risked inventory based on development pace projections for 2024-2026, and a liquids-rich resource base in the Montney and the Uinta Basin that is yet to be fully developed.
Barclays underscored the company's attractive valuation, trading at approximately 4 times and 3.9 times its 2024 and 2025 estimated enterprise value to debt-adjusted cash flow (EV/DACF) under strip prices, which is about a 1.0-1.5 times discount compared to its peers. Additionally, Ovintiv's shares are trading at an 11% discount to net asset value (NAV) at strip prices, which is below the peer group average of 1.09 times 2P NAV.
The $69 price target set by Barclays is based on a blended target multiple of 4 times 2025 estimated EV/EBITDX and 0.9 times NAV, as the firm commences its coverage with a positive outlook on Ovintiv's stock.
InvestingPro Insights
As Barclays initiates coverage on Ovintiv Inc. with an optimistic stance, highlighting the company's free cash flow and resource base, recent data from InvestingPro supports this positive outlook. Ovintiv's market capitalization currently stands at $14.94 billion, with a compelling price-to-earnings (P/E) ratio of 7.01, indicating that the stock may be undervalued relative to its earnings. The company's strong financial performance is also reflected in its revenue of $10.66 billion over the last twelve months as of Q4 2023.
InvestingPro Tips suggest that Ovintiv has a history of rewarding its shareholders, having raised its dividend for 5 consecutive years, with a notable dividend growth of 20% in the last twelve months. Analysts are also showing confidence in the company's future performance, with 7 analysts having revised their earnings upwards for the upcoming period. This is in line with Barclays' analysis of the company's above-average cash flow growth. Additionally, Ovintiv's stock has demonstrated a strong return over the last three months, with a price total return of 34.67%, indicating robust investor confidence.
For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available, which can further inform investment decisions. To access these insights, visit https://www.investing.com/pro/OVV and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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