Tourmaline Oil Stock: How High Could It Go in 2023?

Should you buy Tourmaline Oil stock now?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some of the last year’s top gainer energy stocks have been on a decline recently. Leading natural gas producer Tourmaline Oil (TSX:TOU) is one of them. TOU stock returned 80% last year but has dropped 26% since October 2022. And not only Tourmaline but almost all gas-focused energy producers saw a similar weakness of late. That’s because warmer weather and excess supply weighed on gas prices, which have lost 75% since August 2022.

What’s next for TOU stock?

Notably, Tourmaline is an appealing name even in a low-price environment. It may not see stunning value creation like last year. But the stock will likely remain relatively strong compared to peers and outperform.

Tourmaline is a $21 billion natural gas producer that aims to produce 530,000 barrels of oil equivalent per day in 2023. It also produces oil, natural gas liquids, and condensate and the production mix plays well for diversification.

Tourmaline Oil saw record financial growth last year thanks to higher energy prices. Its free cash flows came in at $2.7 billion in the last 12 months, representing an increase of 217% compared to 2021.

It plans to release Q4 2022 earnings on March 7. Apart from its stellar financial growth, investors can expect further strengthening of its balance sheet. Whether it can continue paying special dividends like last year remains to be seen. However, TOU offers handsome total return prospects in 2023 as well, driven by its handsome free cash flow growth potential.

Created with Highcharts 11.4.3Tourmaline Oil PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

What’s special about Tourmaline Oil?

Tourmaline Oil stands tall among its peers mainly because of its high-quality assets. It has decades of low-cost drilling inventory, which is profitable even in a low-price environment.

Moreover, it sells its production in premium markets like California, which obtains a much higher rate than in the Canadian gas market. As a result, TOU stock has lost 25%, while natural gas prices have corrected by 75% recently.

For 2023, Tourmaline management expects free cash flows of $2.6 billion, lower than in 2022. However, a major chunk of this cash will be used for shareholder dividends as the net debt target has already been achieved. Free cash flow is the difference between cash flow from operations and capital expenditure. Free cash flows are used for dividends, mergers and acquisitions, and debt repayments.

Tourmaline has paid almost $1.5 billion in debt repayments since the pandemic, which has substantially improved its balance sheet. Its low leverage and earnings visibility make it a strong name in the Canadian energy space.

TOU stock also looks attractive from a valuation standpoint after its recent correction. It is currently trading at a free cash flow yield of 12% and looks discounted. On the price-to-earnings front, it is trading four times its 2023 earnings and indicates undervaluation. Even if some TSX energy stocks look cheaper than TOU, its financial growth prospects and dividends offer higher value creation potential.

Foolish takeaway

Even if natural gas prices remain weak, TOU stock might have a limited downside. Analysts have given it a price target of $92, indicating an upside potential of 50%. Its Q4 2022 earnings and management commentary will be essential to watch. How management sees its dividends shaping in 2023 amid low gas prices will be interesting to see. TOU stock is an appealing bet for the long term, given its high-quality assets, sound balance sheet, and free cash flow growth.

Should you invest $1,000 in Tourmaline Oil right now?

Before you buy stock in Tourmaline Oil, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Tourmaline Oil wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

a man relaxes with his feet on a pile of books
Energy Stocks

I’d Put $5,000 in This Dividend Giant for Decades of Income

Looking for a stock that can provide decades of income in addition to strong growth and defensive appeal? Consider this…

Read more »

engineer at wind farm
Energy Stocks

2 Canadian Oil and Gas Stocks to Buy and Hold Through Energy Transitions

Enbridge is one oil and gas stock that has the network and infrastructure to thrive despite the energy transition.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Enbridge vs. TC Energy Stock: How I’d Split $12,000 Between Pipeline Dividend Giants

Investing in blue-chip TSX dividend stocks such as Enbridge and TC Energy is a good strategy for income-seekers in 2025.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Energy Stocks

3 Canadian Green Energy Stocks to Buy and Hold in Your TFSA for a Sustainable Future

Renewable energy stocks are some of the best options for long-term growth, and these are top options.

Read more »

oil pump jack under night sky
Energy Stocks

Canadian Natural Resources: Buy, Sell, or Hold in 2025?

Canadian Natural Resources is down more than 20% in the past year. Is CNQ stock oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

These 2 Energy Stocks Are a No-Brainer in Today’s Market

These two energy stocks have reliable operations and pay significant dividends, making them two of the best stocks that you…

Read more »

Canada national flag waving in wind on clear day
Energy Stocks

Top Canadian Value Stock I’d Consider During This Buying Opportunity

Are you looking to put some cash to work during this downturn? Here are two TSX stocks to have on…

Read more »

A plant grows from coins.
Energy Stocks

Got $25,000? Turn it Into $200,000 in a TFSA as Canadian Dollar Gains

This energy stock may not have a high dividend, but it certainly has a high rate of growth to look…

Read more »