I do not own this stock of Ovintiv Inc (TSX-OVV, NYSE-OVV), but I have owned this stock before as Alberta Energy Co. This company split into two companies in the later part of 2009 - Encana Corporation and Cenovus Energy Inc. On January 27, 2020, this company has changed its name from Encana Corp (TSX-ECA, OTC-ECA) to Ovintiv Inc (TSX-OVV, OTC-OVV).
When I was updating my spreadsheet, I noticed that there was a big drop in Property, Plant and Equipment’s value in the Asset section and in the Shareholder’s Equity for Reclassification of Share Capital due to Reorganization. The end result is that Book Value per Share dropped some 61% in US$ and 62% in CDN$.
The dividend yields are low with dividend growth has been restarted. The current dividend yield is low (below 2%) at 1.45%. The 5 year and historical median dividend yields are also low at 0.75% and 1.45%. The 10 year median dividend yield is moderate (2% to 4% ranges) at 2.18%. Over the 28 years of data I have, the company increased dividends 11 times and decreased them 10 times. The last decrease was in 2021 and it was for 49%. Dividends have been paid in each of the 28 year I have covered.
The Dividend Payout Ratios (DPR) are probably fine. I cannot calculate the DPR for EPS for 2020, nor the 5 year coverage because of earning losses. The DPR for EPS for 2021 is expected to be 13.5%. The DPR for CFPS for 2020 is 5% with 5 year coverage at 4%. The DPR for Free Cash Flow for 2020 is 61%. I cannot calculate the 5 year coverage because of negative FCF. The FCF for 2021 is expected to be 7%. Analysts expect the FCF to go up some 1,029% in 2021.
Debt Ratios need improving. The Long Term Debt/Market Cap Ratio for 2020 is much too high at 1.71 for 2020. If this ratio is higher than 1.00, it means that the Long Term Debt is greater than the Market Cap. The Liquidity Ratio for 2020 is 0.51. If you add in cash flow after dividends it is 1.26. This is too low. The Debt Ratio is low at 1.36. I like these two last ratios to be at 1.50 or higher. The Leverage and Debt/Equity Ratios for 2020 are too high at 3.77 and 2.77. I like these below 3.00 and below 2.00.
The Total Return per year is shown below for years of 5 to 28 to the end of 2020 in CDN$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | -24.43% | -10.62% | -12.25% | 1.63% |
| 2010 | 10 | -19.12% | -16.50% | -18.73% | 2.23% |
| 2005 | 15 | -4.13% | -8.91% | -12.50% | 3.59% |
| 2000 | 20 | 1.56% | -0.90% | -5.99% | 5.09% |
| 1995 | 25 | 1.25% | 6.79% | -0.18% | 6.98% |
| 1992 | 28 | 1.60% | 7.75% | 0.90% | 6.85% |
The Total Return per year is shown below for years of 5 to 19 to the end of 2020 in US$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | -23.15% | -8.16% | -9.87% | 1.71% |
| 2010 | 10 | -21.07% | -18.58% | -20.68% | 2.10% |
| 2005 | 15 | -4.71% | -9.25% | -13.12% | 3.88% |
| 2001 | 19 | 2.48% | 2.69% | -4.55% | 7.24% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 4.56, 8.39 and 12.22. The corresponding 10 year ratios are 3.55, 6.08 and 8.62. The corresponding historical ratios are 7.11, 8.39 and 10.09. The current P/E Ratio is 11.15 based on a stock price of $47.60, EPS estimate of $4.28 ($3.46 US$). The current ratio is above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive. This testing is in CDN$.
I get a Graham Price of $42.40. The 10 year low, median, and high median Price/Graham Price Ratios are 0.73, 1.04 and 1.44. The current P/GP Ratio is 1.12 based on a stock price of $47.60. The current ratio is between the median and high ratios of the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median. This testing is in CDN$.
I get a 10 year median Price/Book Value per Share Ratio of 1.31. The current P/B Ratio is 2.60 based on a Book Value of $3,934M, Book Value of $15.07 and a stock price of $38.56. The current ratio is 95% above 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. This testing is in US$. You will get a similar result in CDN$.
I get a 10 year median Price/Cash Flow per Share Ratio of 3.61. The current P/CF Ratio is 3.06 based on the Cash Flow per Share estimate for 2021 of $12.60, Cash Flow of $3,290M and a stock price of $38.56. The current ratio is 15% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median. This testing is in US$. You will get a similar result in CDN$.
I get an historical median dividend yield of 1.45%. The current dividend yield is 1.45% based on a stock price of $47.60 and dividend of $0.69 ($0.56 US$). The current ratio is at the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable and at the median. This testing is in CDN$. You will not get a similar result in US$ because US$ information only goes back 19 years whereas CDN$ information goes back 28 years.
I get a 10 year median dividend yield of 2.18%. The current dividend yield is 1.45% based on a stock price of $47.60 and dividend of $0.69 ($0.56 US$). The current ratio is 32% below the 10 year dividend yield. This stock price testing suggests that the stock price is relatively reasonable and at the median. This testing is in CDN$. You will not get a similar result in US$ because US$ information only goes back 19 years whereas CDN$ information goes back 28 years.
The 10 year median Price/Sales (Revenue) Ratio is 2.18. The current P/s Ratio is 1.37 based on Revenue estimate for 2021 of $7,344M, Revenue per Share of $28.13 and a stock price of $38.56. The current ratio is 33% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap. This testing is in US$. You will get a similar result in CDN$.
I looked at the total return over a number of years. For P/S Ratio and P/E Ratio, the lower the ratio the cheaper the stock. For yield, the higher the yield, the cheaper the stock.
In the following chart the total return for the 10 years to December 31, 2020 is a loss of 16.50% per year. The beginning yield was high at 2.74%, and the P/E Ratio and the P/S Ratio were at 14.37 and 2.42. Does this chart change my opinion of the stock price? I do not think this chart spreads any light on the stock price.
| # Years | Total Ret | Beg P/E | Beg P/S | Beg Yield |
|---|---|---|---|---|
| 5 | -10.62% | -0.81 | 0.98 | 5.52% |
| 10 | -16.50% | 14.37 | 2.42 | 2.74% |
| 15 | -8.91% | 11.74 | 2.68 | 0.66% |
| 20 | -0.90% | 6.01 | 1.16 | 0.56% |
| 25 | 6.79% | 7.60 | 1.42 | 1.83% |
| 28 | 7.75% | 30.66 | 2.15% | |
| current | 11.15 | 1.37 | 1.21% |
Results of stock price testing is that the stock price might be reasonable or even cheap, but there is lots of risk involved. This company is into oil and gas and therefore is cyclical. If you time cyclical stocks at the right time you can make money. I do not think they are ever a buy and hold. There is also a problem that eventually we will have to get off oil and gas for energy. However, no matter what anyone says, this a going to take awhile (like maybe 20 years).
The one clear signal is the P/S Ratio test which shows that the stock price is cheap. The other good test is the P/CF Ratio test and this shows the stock price as reasonable and below the median. The dividend yield tests are not helpful as dividends have gone up and down over the years. The dividend yield tests work on stocks where the dividends are increased over time.
Is it a good company at a reasonable price? The price is cheap to reasonable, but with lots of risks. Since this is a cyclical stock, I would never consider it a long term hold but people can make money over a cycle when the stock price is rising. We have also been in an unusual cycle because of the pandemic and measures taken by various governments. No one knows how this will end. Also, the company has recently changed its name. This is so investors will not think of what the old company did, but only what the new one did. This works surprising well.
When I look at analysts’ recommendations, I find Strong Buy (10), Buy (8), Hold (7) and Underperform (1). The consensus would be a Buy. Recommendations from analysts are all over the place and this is never a good sign.
The 12 month stock price consensus is $49.39 ($39.90 US$). This implies a total return of 4.85% with 3.40% from capital gains and 1.45% from dividends. The high stock price from analysts is $58.27 ($47.07 US$). This implies a total return of $23.43% with 21.98% from capital gains and 1.45% from dividends. The low stock price from analysts is $40.15 ($32.43US$). This implies a loss of 14.51% with a capital loss of 15.96% and dividends of 1.45%.
Analysts on Stock Chase are mostly unexcited by this company. On Motley Fool is the transcript for the Q2 2021 Earnings Call. The executive summary on Simply Wall Street gives this stock 3 stars out of 5 and list no risk. A writer on Simply Wall Street says this stock has poor dividend characteristics. A writer on Simply Wall Street says that the intrinsic value of this stock is $57.56 CDN$ and it is undervalued. Asma UL Husna of Insider Monkey on Yahoo Finance says Hedge Funds are snapping up this stock.
Ovintiv Inc is an independent oil and gas producer with key assets in the Permian, Eagle Ford, Montney, and Duvernay areas of US and Canada. Its web site is here Ovintiv Inc.
The last stock I wrote about was about was CCL Industries Inc (TSX-CCL.B, OTC-CCDBF) ... learn more. The next stock I will write about will be Dollarama Inc (TSX-DOL, OTC-DLMAF) ... learn more on Monday, October 25, 2021 around 5 pm.
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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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