Why Is Cenovus (CVE) Down 9.6% Since Last Earnings Report?

It has been about a month since the last earnings report for Cenovus Energy (CVE). Shares have lost about 9.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cenovus due for a breakout? 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.

Cenovus Lags Q2 Earnings Estimates, Revenues Declines Y/Y

Cenovus Energy reported second-quarter 2019 earnings per share of 16 cents, missing the Zacks Consensus Estimate of 23 cents. In the prior-year quarter, the company had incurred a loss of 19 cents.

Meanwhile, quarterly revenues of $4,431 million surpassed the Zacks Consensus Estimate of $4,383 million but declined from the year-ago figure of $4,671 million.

The leading integrated energy firm’s higher year-over-year earnings were supported by increased average realized crude prices. This was however partially offset by lower production volumes, reduced contributions from the Deep Basin business unit and unplanned maintenance activities at refineries.

Operational Performance

Quarterly revenues from the Oil Sands unit declined to C$2,716 million from C$3,069 million in second-quarter 2018, courtesy of lower production of oil sands due to Alberta government’s mandated production curtailment program. In the June quarter of 2019, the company recorded daily oil sand production of 344,973 barrels, down 11.4% year over year.

However, operating margin at the segment surged to C$1,049 million from the year-ago quarter’s C$476 million, thanks to higher Western Canadian Select price of C$65.80 per barrel compared with C$62.75 in the year-ago period. Moreover, its low-cost structure and capital discipline supported the performance.

Revenues from the Deep Basin unit fell to C$140 million from C$225 million in the year-ago quarter. Moreover, the segment’s operating margin came in at C$30 million, down from C$78 million in the year-ago quarter. Higher operating costs per barrel and lower sales volumes affected the segment.

At the Refining and Marketing segment, the company generated revenues worth C$2,849 million, up from C$2,777 million a year ago. The unit’s operating margin was recorded at C$198 million compared with the year-ago level of C$357 million, primarily due to increased operating costs, and unplanned maintenance activities at both Wood River and Borger refineries.

Expenses

Transportation and blending expenses in the reported quarter fell to C$1,354 million from C$1,665 million in the year-ago period. Operating expenses also declined to C$530 million from the year-ago level of $535 million. However, expenses for purchased products rose to C$2,381 million from C$2,024 million in second-quarter 2018.

Capital Expenditures & Balance Sheet

The company incurred net capital expenditure of C$250 million in the quarter under review.

Notably, Cenovus generated $834 million in free funds flow, which was used to reduce net debt. As of Jun 30, 2019, the Canadian energy player had cash and cash equivalents of C$64 million, and total long-term debt of C$7,152 million. Its total debt-to-capitalization ratio was approximately 27.3%.

Guidance

Through third-quarter 2019, the company expects average bitumen and oil output to reach a maximum limit of 360,000 barrels. For full-year 2019, the company expects total oil sands daily production within 350-370 thousand barrels of oil equivalent per day.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 23.08% due to these changes.

VGM Scores

At this time, Cenovus 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 C on the value side, putting it in the middle 20% 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 trending upward for the stock, and the magnitude of this revision has been net zero. Notably, Cenovus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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