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September 20, 2019

Royal Bank Raises Target Price & Rating For Cenovus (TSX:CVE)

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Dan Kent

September 20, 2019

The Royal Bank of Canada has raised both its target price and rating for popular Canadian stock Cenovus Energy (TSX:CVE).

The Canadian banking giant boosted its target price by more than 20% on Cenovus this morning, up from $14 to $17.00. To go along with this increase, RBC has also bumped their rating from Neutral to Outperform, suggesting it sees potential in the Canadian oil producer.

Cenovus has been on somewhat of a tear recently, up 22% in the last month on the back of rising Western Canada Select prices. WCS is up over 344% since it hit record lows in November 2018 and now sits at $42.69 a barrel.

What to make of the Canadian producer

It’s no wonder that banks are upgrading their outlooks on the Canadian producer, it’s currently dirt cheap. Even with its most recent run up, Cenovus is trading at a mere 0.86 times book value and 0.78 times sales.

The Saudi Arabia supply shock has definitely helped the Canadian producer increase its stock price. The company reported in its most recent earnings report that it has generated nearly $1.5 billion in free funds flow, putting it on pace to generate close to $3 billion in FFO over the course of the year. As Cenovus has made it a priority to reduce its current debt load, the ability for the company to generate strong cash flows is a necessity.

Pipeline progress will be a huge factor in where the company’s stock price heads from here. I am a firm believer that the pipelines will get built regardless of the political party in place, but there is no doubt that a Conservative Federal government could bode well for Canadian producers like Cenovus, Canadian Natural Resources and Suncor. Conservative party leader Andrew Scheer has stated he will fast track pipeline disputes directly to the Supreme Court.

Moving forward, I would expect significant volatility from Cenovus, which is already reflected in its 3 month beta of 2.16. If you’re looking for a safer, more reliable oil and gas play to take advantage of extreme price lows, you may be wise to take a look at Canadian Natural Resources (TSX:CNQ) or Suncor Energy (TSX:SU).

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Dan Kent


An active dividend and growth investor, Dan has been involved with the website since its inception. Dan is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. Dan manages his TFSA, RRSPs and a LIRA at Questrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.

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