BMO Reiterates Cenovus Energy Price Target Following Husky Transaction Announcement

Over the weekend, Cenovus Energy (TSX: CVE) announced that they would be buying Husky Energy (TSX: HSE) in an all-stock transaction valued at $23.6 billion, including debt. Cenovus valued Husky Energy at $3.8 billion, a 21% premium to Friday’s close. Cenovus said that they expect to yield cost synergies totaling $1.2 billion and give the company increased scale and relevance.

In a note sent out on October 26th, BMO’s analyst Randy Ollenberger reiterated their $7.50 12-month price target and outperform rating on the stock. He comments, “While the near-term market reaction may be mixed, we believe the transaction puts Cenovus in a better position to strengthen its balance sheet, generate free cash flow, and increase future returns to shareholders.”

Ollenberger says that Husky has $5.8 billion in net debt based on their estimates as of the first quarter of 2021. The 0.7845 Cenovus share’s Husky shareholders will receive represents a 21% premium to the share price on Friday’s close. He also says that this deal values Husky at 5x 2021 EBITDA, which, “is at the low end of its peer average. We view the transaction as being accretive to cash flow.”

This acquisition will make Cenovus the third-largest producer in Canada and, “give it the most refining capacity of the Canadian integrated producers,” says Ollenberger.

Ollenberger says that although the M&A might come as a surprise to some people, “we believe the proposed transaction makes sense from both an operational and financial perspective. Cenovus’ oil sands expertise should unlock considerable value in Husky’s thermal asset base while Husky’s integrated corridor provides opportunities to enhance the value of Cenovus’ oil sands production.”

Below you can see the Pro Forma numbers that BMO has forecasted. Most notable would be the new Cash Flow from Operations increasing by 134%, and Free Cash Flow per dividend will be up 178%.

Ollenberger has also slightly changed 2020 and 2021 EPS while upgrading CFPS and EBITDA for 2021. Ollenberger now forecasts that EPS will be ($2.06) and ($0.68) compared to their previous estimates of ($1.91) and ($0.51), respectfully. In comparison, CFPS and EBITDA are expected to be $1.47 and $3.38 billion in 2021 compared to the old estimate of $1.18 and $1.85 billion.


Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply

Video Articles

Endeavour Mining Q1 Earnings: Cash Flow Is King

G Mining Oko West Feasibility: Move Fast, Break.. Nothing?

New Gold Q1 Earnings: What’s Behind The Market’s Surprising Reaction?

Recommended

First Majestic Posts Record Cash Flows In Q1 As Production Costs Fall

Brazil Potash Secures Funding In Support Of US$2.5 Billion Autozales Project

Related News

Cenovus Energy Completes Acquisition Of Husky Energy

The previously announced $23.6 billion all stock transaction between Cenovus Energy (TSX: CVE) and Husky...

Monday, January 4, 2021, 09:00:34 AM

Cenovus Returns $1.1 Billion to Shareholders Despite Decline in Free Cash Flow and Earnings

Cenovus Energy Inc. (TSX: CVE) released its financial results for the third quarter of 2024,...

Thursday, October 31, 2024, 03:43:00 PM

Cenovus Energy Ends 2021 With $46.36 Billion In Revenue

Cenovus Energy (TSX: CVE) reported today its Q4 and full-year 2021 financial results. The report highlighted...

Tuesday, February 8, 2022, 03:49:00 PM

BMO: Cenovus Energy Has “Peer-Leading Cash Return Potential”

On February 8th, Cenovus Energy (TSX: CVE) reported its fourth-quarter and full-year 2021 results. The...

Saturday, February 12, 2022, 05:10:00 PM

Cenovus Energy Cuts Workforce Before Q1 Report

Cenovus Energy (TSX: CVE) has confirmed job reductions this week as it faces mounting pressure...

Wednesday, May 7, 2025, 02:07:00 PM