Canadian energy stocks look more attractive than their U.S. peers on a valuation basis, but Macquarie Scientific studies are finding better opportunities in natural gas-weighted names.
Analyst Brian Bagnell noted that the median estimated EV/DACF valuation according to oil and gas futures strip prices has climbed to 13.6x within the U.S., while Canadian names are trading at 12.1x.
A glance at 2017 forecasts implies that the multiple on U.S. energy stocks falls to 12.9x, but in Canada that number falls more sharply to approximately 11.0x.
“In our opinion, this can be a very modest amount of compression on both sides of the border, suggesting most stocks remain expensive even on 2017 multiples,” Bagnell said inside a research note.
With large cap names generally trading confined to small and mid-cap energy stocks, the analyst sees better opportunities within the latter group.
The implied gains in forward gas prices over the next year also has him favouring gas-weighted names.
Canada’s Birchcliff Energy Ltd. and Houston-based Cabot Oil & Gas Corp. stand out among gas-weighted names according to 2017 forecasts, with Bagnell highlighting the substantial valuation compression implied for 2017.
The analyst also highlighted TSX-listed Advantage Oil & Gas Ltd., Peyto Exploration & Development Corp., and RMP Energy Inc. as relatively attractive names based on figures for 2016 and 2017.
Among oil-weighted producers, Granite Oil Corp., Tamarack Valley Energy Ltd., and U.S.-based PDC Energy Inc. stand out among small and mid caps, while Husky Energy Inc. was designated as an attractive large cap name according to 2017 metrics.
