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On Friday, Evercore ISI adjusted its price target for Ovintiv Inc. (NYSE:OVV) to $54.00, down from the previous $56.00, while maintaining an Outperform rating on the stock. Currently trading at $43.32, InvestingPro analysis suggests the stock is undervalued, with a P/E ratio of 10.19x and market capitalization of $11.28 billion. The revision comes after a strategic pause in the company’s share buyback program, a move deemed appropriate by Evercore ISI to manage the additional debt incurred from Ovintiv’s recent Montney acquisition, balanced against proceeds from the Uinta asset sale.
The research firm highlighted Ovintiv’s ongoing commitment to returning 50% of its free cash flow post base dividend to shareholders through share repurchases. According to InvestingPro data, the company has maintained dividend payments for 53 consecutive years and currently offers a 2.77% dividend yield. The buyback program, which was temporarily halted, is expected to resume in the second quarter of 2025, funded by the excess free cash flow generated in the first quarter of the year. Analysts at Evercore ISI anticipate that Ovintiv will return approximately $620 million to shareholders in 2025 through share buybacks, noting a 3-4% year-over-year increase despite lower oil prices.
Ovintiv’s strategy also includes a focus on debt reduction throughout the year, with a long-term goal of reaching a total debt level of $4 billion, which would equate to a debt-to-EBITDA ratio of around 1.0x at a mid-cycle West Texas Intermediate (WTI) oil price of $55 per barrel. With current EBITDA of $4.37 billion and an overall financial health score rated as "GOOD" by InvestingPro, which offers comprehensive analysis of 1,400+ US stocks through its Pro Research Reports, the company appears well-positioned to execute its debt reduction strategy. Based on current pricing, Evercore ISI projects that Ovintiv will end 2025 with $4.8 billion in net debt and is on track to meet its debt target early in 2027.
In terms of shareholder returns, using current strip prices, Evercore ISI forecasts that Ovintiv shares will offer an unlevered free cash flow yield of 15% for 2025 and 12% for 2026. Additionally, the total cash return yield is expected to be 8.3% for 2025 and 9.7% for 2026, reflecting the firm’s positive outlook on the company’s financial strategy and potential for investor returns. The company’s strong track record is evidenced by its impressive five-year performance and consistent dividend growth, as highlighted in multiple InvestingPro Tips.
In other recent news, Ovintiv Inc. reported its fourth-quarter 2024 earnings, showing a mixed financial performance with an earnings per share (EPS) of -0.23, which fell short of the expected 1.02. However, the company’s revenue slightly surpassed expectations, reaching $2.25 billion against a forecast of $2.24 billion. Analysts from Morgan Stanley (NYSE:MS) resumed coverage on Ovintiv, rating the stock as Overweight due to the positive impact anticipated from a recent acquisition in the Montney region. They project that this acquisition will enhance Ovintiv’s free cash flow per share by 2025 and improve operational efficiencies. BMO Capital Markets also upgraded Ovintiv’s stock from Market Perform to Outperform, citing the company’s streamlined portfolio and strong operational performance in core areas like the Midland and Montney regions.
Additionally, Ovintiv’s strategic focus on debt reduction aims to achieve a net debt of $4.6 billion by the end of 2025. The company plans to resume share buybacks as early as the second quarter, supported by its financial strategy. Despite the earnings miss, Ovintiv anticipates generating $2.1 billion in free cash flow in 2025, with a focus on oil and condensate-rich areas to drive strategic investments. These developments reflect Ovintiv’s ongoing efforts to enhance shareholder value through operational excellence and financial discipline.
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