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Why Is Cenovus (CVE) Down 16.3% Since Last Earnings Report?

Zacks

A month has gone by since the last earnings report for Cenovus Energy (CVE). Shares have lost about 16.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

Cenovus Energy Q3 Loss Wider Than Expected, Revenues Beat

Cenovus Energy reported third-quarter 2018 loss per share of 15 cents, against the Zacks Consensus Estimate of earnings of 17 cents. In the prior-year quarter, the company had reported a profit of 18 cents. Escalated transportation and blending expenses have hurt the bottom line.

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Meanwhile, quarterly revenues of $4,701 million surpassed the Zacks Consensus Estimate of $4,444 million and improved from the year-ago quarter’s figure of $3,551 million. The increase in refinery utilizations along with higher oil sands production drove the top line.

Operational Performance

Oil Sands: Quarterly revenues in the unit surged to C$2,717 million from C$2,156 million in the third quarter, courtesy of higher production of oil sands. The company recorded daily oil sand production of 376,672 barrels in the July-to-September quarter of 2018, up 4% year over year.

However, the segment’s operating margin was C$682 million, lower than C$822 million in the year-ago quarter due to a surge in chemical expenses.

Deep Basin: Revenues in the business unit jumped to C$203 million from C$187 million. Moreover, the segment’s operating margin came in at C$73 million, up from C$64 million in the year-ago quarter.

Production from new wells primarily supported the business. However, the divestiture of the Cenovus Pipestone Partnership marred the upside in production.

Refining and Marketing: Through this segment, the company generated C$3,126 million of revenues, higher than C$2,161 million in the year-ago quarter. Also, the unit’s operating margin skyrocketed from C$211 million to C$436 million.

Increased utilizations along with the year-over-year higher crack spreads drove the results.

Expenses

Transportation and blending expenses in the reported quarter rose to C$1,494 million from C$1,083 million in the year-ago quarter.

Balance Sheet & Capital Expenditures

As of Sep 30, 2018, the Canadian energy player had cash and cash equivalents of C$1,865 million and total long-term debt of C$8,788 million. The total debt-to-capitalization ratio was approximately 32.1%. The company incurred capital expenditure of C$590 million in the quarter under review.

Dividend

Cenovus Energy paid C$183 million to shareholders as dividend over the first nine months of 2018, higher than C$164 million in the year-ago period.

Outlook

Through 2018, the company expects total oil equivalent daily production between 481 MBOE/D and 509 MBOE/D. For the upstream activities, the company is planning to spend between C$1,060 million and C$1,145 million.

For refining operations, the company is likely to invest between C$180 million and C$200 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -72.7% due to these changes.

VGM Scores

At this time, Cenovus has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cenovus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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