With a daily loss of -3.68%, a 3-month gain of 21.42%, and an Earnings Per Share (EPS) of 13.18, Ovintiv Inc (OVV, Financial) seems to be modestly undervalued. This article aims to provide a thorough valuation analysis of Ovintiv (OVV), examining its financial performance, growth prospects, and intrinsic value. Interested investors are encouraged to explore the comprehensive analysis provided below.
Company Introduction
Ovintiv is an independent oil and gas producer with key assets in the Permian, Eagle Ford, Montney, and Duvernay areas. The company reported net proven reserves of 1,348 million barrels of oil equivalent at the end of 2019. Its net production averaged 543 thousand barrels of oil equivalent per day in 2020, with a ratio of 53% oil and natural gas liquids and 47% natural gas. With a current stock price of $45.58 and a fair value (GF Value) of $52.37, Ovintiv appears to be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. This value is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
With a current price of $45.58 per share and a market cap of $12.50 billion, Ovintiv (OVV, Financial) appears to be modestly undervalued according to GuruFocus Value calculation. As Ovintiv is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Ovintiv has a cash-to-debt ratio of 0.01, which ranks worse than 95.31% of 1023 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Ovintiv's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Ovintiv has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $11.80 billion and Earnings Per Share (EPS) of $13.18. Its operating margin is 31.74%, which ranks better than 75.77% of 970 companies in the Oil & Gas industry. The profitability of Ovintiv is ranked 7 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. Ovintiv's 3-year average revenue growth rate is better than 75.85% of 853 companies in the Oil & Gas industry. Ovintiv's 3-year average EBITDA growth rate is 22.9%, which ranks better than 60.41% of 821 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Ovintiv's ROIC is 24.2 while its WACC came in at 10.49.
Conclusion
In conclusion, the stock of Ovintiv (OVV, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 60.41% of 821 companies in the Oil & Gas industry. To learn more about Ovintiv stock, you can check out its 30-Year Financials here.
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