Thursday, July 7, 2011

Canadian Natural Resources 2

I do not own this stock (TSX-CNQ, NYSE-CNQ). I am writing on this company to contrast the different dividend policies of oil and gas companies. This stock has very low dividend yield and an increasing dividend. Husky Energy has a high dividend yield, but fluctuating dividends.

When I look at the insider trading report, I find net insider selling of $55.8M. Insider buying is $3.8M and insider selling is $59.6M. This is a lot of insider selling. Some insider own a lot of shares (in the millions) however, this is still a lot of insider selling. (Contrast this with $4M insider buying for Husky.) Also, as far as I can see, there are no institutional holders of this stock. However, it would seem that this stock is held by a number of Mutual Funds.

When I look at my spreadsheet, I get a 5 year median low Price/Earnings Ratio of 10.88 and a high P/E Ratio of 16.23. This is on a current price of $40.43. The current P/E ratio of 24.50 is relatively high. The P/E Ratio for earnings estimates for 2012 at 15.55 is a bit more reasonable, but still on the relatively high side. Also, on this stock some analysts are using Earnings from Operations (EFO), not Earnings per Share (EPS). Most sites that I have visited are confusing the EFO and the EPS, as they were with Husky.

I get a Graham Price of $26.41 and the current stock price of $4.43 is some 53% above this price. The 10 year median difference between the Graham Price and the high stock price is less at 41%, so on this basis, the stock price is relatively high.

The 10 year median Price/Book Value ratio is 2.00 and the current P/B ratio is 8% higher at 2.15. This shows a relatively high stock price. It is only the last measure of dividend yield that shows a current good stock price. The current dividend yield is 0.89% and the 5 year median is 0.54%.

When I look at analysts’ recommendations I find Strong Buy, Buy and Hold. The consensus would be a Buy. (See my site for information on analyst ratings.) There are a lot of Buy and Strong Buy recommendations on this stock. Buy recommendations come with a 12 months stock price of $52 to $53.

Analysts remark that the company trades at a premium P/E compared to its peers. (For example, the 5 year median P/E Ratio range is 10.88 to 16.23 compared to Husky’s range of 9.65 to 12.84.) A couple of analysts have said that a good entry point to buy this stock is between $38 and $40. A couple of analysts also remark that this is a well-managed company. One analyst remarked on the fact that this company missed the earnings estimates for the Q1 2011.

I would think that people would pick the type of company by their dividends depending on whether they want dividends and capital gain or just capital gain. This company would produce little in the way of dividends, but could provide capital gains. In any event oil and gas companies are high risk investments.

Canadian Natural Resources Ltd. is a senior oil and natural gas exploration, development and production company. The Company's operations are focused in Western Canada, in the U.K. sector of the North Sea and in offshore West Africa. Its web site is here Canadian Natural Resources. See my spreadsheet at cnq.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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