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On Wednesday, Morgan Stanley (NYSE:MS) resumed coverage on Ovintiv Inc. (NYSE:OVV), assigning the energy company an Overweight rating and setting a price target of $57.00. The investment firm’s analysts joined a broader bullish consensus, with InvestingPro data showing seven analysts recently revising earnings estimates upward. Currently trading at $43.80, Ovintiv appears undervalued according to InvestingPro’s Fair Value model. The investment firm’s analysts highlighted the positive impact of Ovintiv’s recent acquisition in the Montney region, which is expected to significantly boost the company’s future free cash flow per share (FCF/sh).
The acquisition in Montney is projected to be approximately 20% accretive to Ovintiv’s 2025 FCF/sh and adds over 900 net undrilled locations, enhancing the company’s inventory depth. With a current free cash flow yield of 11% and P/E ratio of 10.29, the company demonstrates strong financial metrics. Morgan Stanley’s analysts see potential for Ovintiv to improve operations on the newly acquired assets, drawing parallels to the company’s successful operational enhancements following its 2023 acquisition in the Permian Basin.
Ovintiv’s production profile, which consists of roughly 50% natural gas, positions it to benefit from potential increases in gas prices. The analysts noted that around 75% of Ovintiv’s expected gas production for 2025 is secured with pricing that avoids the weaker sales points AECO & Waha, which could lead to more favorable revenue outcomes.
Morgan Stanley forecasts that by 2025, Ovintiv will offer a free cash flow yield of 17% and a total shareholder return yield of 8%. These figures surpass the peer median yields, which stand at 11% for free cash flow and 7% for total shareholder return, indicating a strong performance relative to other companies in the sector. The Overweight rating suggests that Morgan Stanley views Ovintiv’s stock as likely to outperform the average return of the stocks the firm covers over the next 12 to 18 months. For deeper insights into Ovintiv’s valuation and growth potential, InvestingPro subscribers can access comprehensive research reports with detailed financial analysis and additional ProTips.
In other recent news, Ovintiv Inc. reported its fourth-quarter 2024 earnings, showing mixed results. The company posted an earnings per share (EPS) of -0.23, which was significantly below the anticipated EPS of 1.02. However, revenue slightly surpassed expectations, reaching $2.25 billion against the forecast of $2.24 billion. Additionally, Ovintiv expects to generate $2.1 billion in free cash flow in 2025, maintaining a focus on oil and condensate-rich areas for strategic investments.
Meanwhile, BMO Capital Markets analyst Phillip Jungwirth upgraded Ovintiv’s stock rating from Market Perform to Outperform, citing a more focused portfolio and strong operational performance. Jungwirth also set a new price target of Cdn$57.00 for Ovintiv’s shares, highlighting the company’s clear path toward debt reduction and potential resumption of share buybacks in the second quarter of this year. Ovintiv’s strategic focus remains on generating free cash flow and reducing net debt, with a target of lowering net debt to $4.6 billion by the end of 2025.
Despite the earnings miss, investor confidence appears strong, as reflected by the stock’s positive movement following the earnings announcement. Ovintiv’s management continues to emphasize its strategic positioning and the potential for sustained production levels and shareholder returns. The company’s ongoing focus on operational efficiency and financial discipline aims to enhance its market standing and appeal to investors.
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