Crescent Point Energy Corp. Down 50% YTD.: Is There Upside?

Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) looks like it has upside, but don’t get tricked. This company is suffering.

| More on:
The Motley Fool

It has been an awful year for investors of Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) with shares down 50% since the start of the year. Stretch back to 2015, and shares are down by 70%. Along the way, the dividend has been cut twice — in 2015 and 2016. For those that held on, they’re feeling the pain for their loyalty.

But whenever shares are this cheap, prospective investors begin to wonder if there is significant upside available. A bad investment can quickly become a good one when the price is right. So, is Crescent Point a buy at these prices?

Spot WTI crude is trading at a little over US$47 per barrel. According to analysts at Scotia Capital, for Crescent Point to fund its operations, it requires WTI to be above US$40. Add in the 3.87% yield, and the needed WTI price increases to US$43.

So, if we just look at what Crescent Point is doing right now, the company is in an okay position to continue running the business.

The problem is that there are exploration and development costs. Morningstar analysts actually suggest that Crescent Point requires US$60 per barrel oil for the company to actually be able to fund the entire business. And when you look at that sort of a price, things begin to get a little uncomfortable. Oil has been on a constant roller coaster, but it has rarely reached that US$60 price.

That explains why the stock price is as low as it is. However, we need to determine if the price is going to appreciate enough to justify your investment.

Personally, I don’t see that happening primarily because there is such an oil glut. In the beginning of the year, when oil prices were just under US$60, there was excitement because OPEC had agreed to cut back on its production. That would create an environment where demand could finally catch up to the amount of oil being produced.

The problem was that companies in Canada and the United States just kept pumping. According to the International Energy Agency, production in the United States hit its highest levels since July 2015.

And OPEC isn’t doing any better; its production increased, as reported in June. If everyone is producing more oil, there’s little reason to expect that demand will be able to keep up with the constant supply.

Ultimately, this will keep the price of oil depressed, putting Crescent Point in a difficult position. Although it can pay the dividend with US$43 per barrel oil, it can’t fund the entire company, including exploration and development, so something is going to have to give.

If history has shown us anything, it’s that Crescent Point isn’t afraid to cut the dividend.

Could Crescent Point have an amazing revival? Could oil prices begin to rise? Yes to both questions. Unfortunately, I don’t see where the demand will come from to push oil prices higher. Therefore, my recommendation is to deploy your cash into other companies that have safer dividends and more upside.

If you absolutely believe oil is going to increase, start a small contrarian position in the company. But focus the bulk of your portfolio on higher-quality companies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned.

More on Energy Stocks

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Valued at a market cap of $55 billion, Imperial Oil pays shareholders a growing dividend yield of 2.4%. Is the…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Where Will Imperial Oil Stock Be in 1 Year?

Imperial Oil is a TSX energy stock that has delivered market-thumping returns to shareholders over the last two decades.

Read more »

Pumpjack in Alberta Canada
Energy Stocks

1 Magnificent Energy Stock Down 17% to Buy and Hold Forever

Down over 17% from all-time highs, Headwater Exploration is a TSX energy stock that offers you a tasty dividend yield…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Cenovus Energy Stock a Good Buy?

Cenovus Energy (TSX:CVE) stock is primed for capital gains and strong total returns in 2025, driven by strategic buybacks and…

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

2 High-Yield Dividend Stocks That are Screaming Buys Right Now

Natural gas stocks like Peyto Exploration and Development are yielding above 7% today and look undervalued as natural gas strengthens.

Read more »

chart reflected in eyeglass lenses
Energy Stocks

Best Stock to Buy Right Now: Canadian Natural Resources vs Cenovus?

Want to invest in Canadian energy? Canadian Natural Resources and Cenovus Energy are two of the largest, but which one…

Read more »

oil pump jack under night sky
Energy Stocks

Where Will Cenovus Stock Be in 1/3/5 Years? 

Let's dive into whether Cenovus (TSX:CVE) stock is worth buying right now and where this stock could be headed over…

Read more »