Is Cenovus Energy Inc. a Buy After Announcing More Aggressive Cuts?

Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) has had a troubling 2017. Here’s why the company might be positioning itself for a strong rebound in 2018.

| More on:

Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) saw its share price drop more than 5% on Thursday, as the company announced it would be accelerating its cost-cutting efforts. Cenovus said that it would look to reduce its workforce by 15%, which will mean more than 500 jobs will be eliminated in what will be just the latest round of cuts for the company.

Since 2015, Cenovus has eliminated nearly 2,000 jobs as it has tried to look for ways to reduce costs in an attempt to stay competitive amid a lower price of oil.

Alex Pourbaix, the new CEO that took over from Brian Ferguson last month, is looking to accelerate the cost reductions that were originally planned by his predecessor. The original goal was to shave off as much as $1 billion in costs over the next three years, but Pourbaix is planning to achieve that in just two years.

One way that Cenovus is going to accomplish that is by reducing its capital expenditures for 2018.

Cenovus has had a challenging 2017

Early in the year, the company announced it would be buying assets from ConocoPhillips in a deal that would add a lot of debt to its books, and that would not be voted on by shareholders.

This did not sit well with investors, and Cenovus ultimately pledged to sell some assets to bring down its debt, which it ultimately did, although the asset sales came in a bit lower than expected.

Unfortunately, much of the damage had already been done to the stock, and year to date, the share price has plummeted more than 40%, and that figure would be even lower if not for the stock’s recent recovery.

Financial performance has improved this year

Although Cenovus has struggled to cope with a lower price of oil, the company saw sales growth of 49% in its most recent quarter, and it has turned a profit in three of the last four quarters. These latest cuts will add even more to the company’s bottom line, and that should be welcome news to investors.

Rising oil prices could see the stock take off in 2018

With OPEC announcing that supply cuts will be extended, possibly until the end of 2018, that could result in oil prices continuing to climb next year. If that happens, Cenovus and other oil and gas stocks will stand to benefit, as that will push both revenues and profits up.

We might not see oil prices return to the highs we saw in 2014, but many oil and gas companies no longer need $100 oil to be profitable.

Should you buy Cenovus today?

The company’s stock price currently trades at a little more than 0.7 times its book value, and it could be a great investment with lots of potential upside next year.  Given that the company is already performing well with a low price of oil, there could be significant potential for the stock if oil prices continue to rise.

Cenovus has had a dreadful year that saw the company’s share price hit a new all-time low after a lot of negative press. It’s unlikely we’ll see a repeat of that next year, and that’s why the stock might be a good buy today, while the price is still low.

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 David Jagielski 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 »