Home » BLOG » Where to find value in the energy sector

Where to find value in the energy sector

The implied gains in forward natural gas prices over the next year also Macquarie favouring gas-weighted names over oil-weighted producers

Canadian energy stocks look more appealing than their U.S. peers on a valuation basis, but Macquarie Scientific studies are finding better opportunities in natural gas-weighted names.

Analyst Brian Bagnell noted the median estimated EV/DACF valuation according to oil and gas futures strip prices has climbed to 13.6x within the U.S., while Canadian names are trading at 12.1x.

A look into 2017 forecasts implies that the multiple on U.S. energy stocks falls to 12.9x, however in Canada time falls more sharply to approximately 11.0x.

“In our opinion, this is a very modest amount of compression on both sides of the border, suggesting most stocks remain expensive even on 2017 multiples,” Bagnell said inside a research note.

With large cap names generally trading confined to small and mid-cap energy stocks, the analyst sees better opportunities within the latter group.

The implied gains in forward natural gas prices within the next year also has him favouring gas-weighted names.

Canada’s Birchcliff Energy Ltd. and Houston-based Cabot Oil & Gas Corp. stick out among gas-weighted names according to 2017 forecasts, with Bagnell highlighting the substantial valuation compression implied for 2017.

The analyst also highlighted TSX-listed Advantage Oil & Gas Ltd., Peyto Exploration & Development Corp., and RMP Energy Inc. as relatively attractive names according to figures for 2016 and 2017.

Among oil-weighted producers, Granite Oil Corp., Tamarack Valley Energy Ltd., and U.S.-based PDC Energy Inc. stand out among small , mid caps, while Husky Energy Inc. was designated being an attractive large cap name based on 2017 metrics.

About privatefinancetips

x

Check Also

U.S. job growth slows and profits tumble as a strong dollar and cheap oil undercut earnings

WASHINGTON – U.S. economic growth slowed within the fourth quarter, although not as sharply as ...

The REIT sector’s next challenge: CEO succession and board renewal

Getting there C with new chief executives and groups of new directors for that firms ...

Commodities could be headed for ‘buffalo jump’ as investors rush for the exits, Barclays warns

Commodities including oil and copper are in chance of steep declines as recent advances aren’t ...