CVE:CC - MEG Energy: Moving To 100% Free Cash Flow Return

2024-06-23 13:09:15 ET

Summary

• MEG Energy Corp. has significantly reduced net debt over the past few years.
• The 100% free cash flow return target looks to be just around the corner.
• We tell you why we are still not issuing a buy rating and what we like instead.

Note: All amounts discussed are in Canadian Dollars unless disclosed otherwise

We were simply enamored at how MEG Energy Corp. (TSX: MEG:CA ) went from close to $3 billion in net debt in 2019 to around $700 million net debt by the close of 2023. All this while the company was returning cash to the shareholders via buybacks. The plan was much of the same for 2024, with the addition of growth projects to capitalize on the strong balance sheet. We still went with a hold for the stock after reviewing the numbers back in February of this year. We liked it better via options due to the high implied volatilities, which in our opinion were unjustified given the trajectory of its net debt to EBITDA. We chose an option that, if assigned, would get us the stock at the price we wanted....

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