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Why Is Ovintiv (OVV) Up 41% Since Last Earnings Report?

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It has been about a month since the last earnings report for Ovintiv (OVV). Shares have added about 41% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ovintiv due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Ovintiv Reports Lower-Than-Expected Q1 Earnings

Ovintiv reported its first-quarter adjusted earnings per share (EPS) of $2.17, missing the Zacks Consensus Estimate of $2.54. This downside in results can be attributed to a year-over-year dip in production and much higher costs. However, $2.17 was higher than the year-ago bottom line’s profit of $1.10 per share due to higher price realizations.

Total revenues of $1.97 billion missed the Zacks Consensus Estimate of $2.42 billion due to lesser-than-expected total oil and natural gas liquid production. Total oil production came in at 173,000 barrels of oil equivalent per day (BOE/d), beating the Zacks Consensus Estimate of 129,000 BOE/d. The top line improved by 7% from the year-ago sales of $1.84 billion.

In pleasant news for investors, OVV’s board of directors declared a quarterly dividend of 25 cents per share for its common shareholders of record as of Jun 15, 2022, which will be paid out on Jun 30. This represents an increase of 25% from the previous level.

Production & Prices

Total first-quarter production came in at 499,900 BOE/d compared with 538,300 BOE/d in the prior-year period and met the Zacks Consensus Estimate. Lower volumes can be attributed to natural gas production falling 5.6% year over year to 1,486 million cubic feet per day (MMcf/d), while liquids production was down 8.5% to 252,100 BOE/d.

Ovintiv's realized natural gas price was $2.60 per thousand cubic feet compared with the year-ago level of $3.10. The realized oil price increased to $80.74 per barrel from $47.44 in the first quarter of 2021.

Costs, Capex & Balance Sheet

Total expenses in the reported quarter increased to $2.17 billion from the year-ago figure of $1.64 billion. This rise is primarily attributable to greater market optimization operating expenses.

Ovintiv’s cash from operating activities in the quarter under review summed at $685 million, down from the year-ago figure of $827 million. OVV's capital investments were $451 million compared with $350 million in the year-ago period.

Ovintiv generated a non-GAAP free cash flow of $592 billion in the reported quarter.

As of Mar 31, the company had cash and cash equivalents worth $271 million and long-term debt of $4.77 billion. Its debt-to-capitalization ratio was 50.5%

Guidance

Ovintiv expects capital expenditure in the $525-$550 million range for the second quarter of 2022 and between $1.7 and 1.8 billion for the full year, up from the previous guidance of $1.5 billion, to reflect an increase in service costs.

For 2022, OVV projects crude oil and condensate volumes to average between 172,000 barrels per day (bpd) and 175,000 bpd in the second quarter and between 180,000 and 185,000 bpd for the full year (180,000-190,000 before). Natural gas production is estimated at the 1,435-1,465 MMcf/d range for the second quarter and between 1,450 and 1,500 MMcf/d for the entire year.


How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -6.73% due to these changes.

VGM Scores

At this time, Ovintiv has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 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, Ovintiv has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Ovintiv is part of the Zacks Oil and Gas - Exploration and Production - Canadian industry. Over the past month, Canadian Natural Resources (CNQ), a stock from the same industry, has gained 17.4%. The company reported its results for the quarter ended March 2022 more than a month ago.

Canadian Natural Resources reported revenues of $8.43 billion in the last reported quarter, representing a year-over-year change of +61.5%. EPS of $2.26 for the same period compares with $0.81 a year ago.

For the current quarter, Canadian Natural Resources is expected to post earnings of $2.27 per share, indicating a change of +124.8% from the year-ago quarter. The Zacks Consensus Estimate has changed +4.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Canadian Natural Resources. Also, the stock has a VGM Score of A.


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