CPG - Crescent Point Energy: I Am Buying For A Possible 80+% Upside To Fair Value

2024-03-05 09:06:08 ET

Summary

• Crescent Point came through a transition resulting in 20+ years of drilling inventory but higher debt.
• The company generates a high excess cash flow yielding 13% for 2024 while growing fast and repaying its debt.
• The production profile is becoming gassier with higher decline rates.
• Detailed DCF valuation points to a fair price of C$18.66, suggesting an 84% upside, which gives the stock a Strong Buy rating.

Investment Thesis

Crescent Point Energy ( CPG )( CPG:CA ) has transitioned after the Hammerhead Energy acquisition and ended up with a premium 20+ years drilling inventory portfolio. The acquisition increased the company's share count and debt, and investors didn't take it well. While most Canadian O&G (Oil and Gas) producers are now deleveraged and focus on returning the capital to shareholders, Crescent needs to focus on debt repayment again. CPG also has a gassier production profile now with 65% liquids production, down from 76%. I don't see it as an issue, as I am equally bullish on gas and oil....

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