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'Inflation impact': CIBC trims price targets for 3 Canadian oil sands stocks

CIBC says rising energy input costs has been a theme for oil and gas executives on many quarterly conference calls. (GETTY)
CIBC says rising energy input costs has been a theme for oil and gas executives on many quarterly conference calls. (GETTY)

CIBC Capital Markets has lowered its price targets on a trio of Canadian oil and gas stocks that have surged this year amid rising oil prices. The bank cites rising costs due to inflation as a concern for Cenovus Energy (CVE.TO)(CVE), Canadian Natural Resources (CNQ.TO)(CNQ), and MEG Energy (MEG.TO).

Analyst Dennis Fong says rising energy input costs, mainly the price of natural gas, has been a theme for executives on many quarterly conference calls. He expects energy-related expenses will be in focus through the end of 2022.

"Even the oil sands companies were not immune to increasing cost pressures, including labour shortages during turnarounds, rising energy input costs and the payouts of oil sands projects triggering step-changes in royalty rates," Fong wrote in a note to clients published Tuesday.

CIBC is calling for 10 to 15 per cent cost inflation for 2023 capital spending, compared to proposed 2022 spending levels for large-cap energy companies under the bank's coverage.

"We believe that oil sands companies have done well thus far to moderate the impact of cost inflation given pre-planning for turnarounds, but as the costs of materials and labour increase, this should be reflected in go-forward estimates," Fong wrote.

He highlights Canadian Natural, Cenovus, and Ovintiv (OVV.TO) among the companies that also benefit from strong natural gas prices, in addition to consuming the fuel for operations. He also notes MEG, Suncor Energy (SU.TO)(SU), Cenovus, and Imperial Oil (IMO.TO) have power generation capacity to help offset energy costs.

Fong lowered his 12 to 18-month price target for Cenovus to $32 from $34 per share, cut his target for Canadian Natural to $85 from $95, while MEG's price target was slashed to $22 from $26. The analyst maintains an "outperform" rating on Cenovus and Canadian Natural, and a "neutral" rating on MEG.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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