Valued at a market cap of $57 billion, Imperial Oil (TSX:IMO) is among the largest energy companies in Canada. In the last 20 years, IMO stock has returned more than 500% to shareholders in dividend-adjusted gains, outpacing the TSX Index, which is up 417% since October 2004.
Let’s see if the TSX energy stock can continue to deliver outsized gains to shareholders in 2024 and beyond.
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Is Imperial Oil stock a good buy right now?
Imperial Oil is engaged in the exploration, production, and sales of crude oil and natural gas in Canada. It has three primary business segments that include:
- Upstream – It explores and produces crude oil, natural gas, synthetic oil, and bitumen.
- Downstream – It is involved in the transportation and refining of crude oil, as well as the blending and marketing of these products.
- Chemicals – The segment manufactures and markets petrochemicals, benzene, solvents, and other products.
In Q2 2024, Imperial Oil reported a net income of $1.1 billion, up $458 million year over year due to higher volume realizations in the upstream segment and lower turnaround impacts in the downstream business.
Its operating cash flow in Q2 was $1.6 billion, up $400 million year over year. The company’s capital expenditures were $462 million, which indicates free cash flow of $1.1 billion.
Comparatively, Imperial Oil paid $321 million in quarterly dividends, indicating a payout ratio of around 30%. A low payout ratio and steady cash flow have helped Imperial Oil raise its dividends from $0.52 per share to $2.40 per share in the last 10 years.
Imperial Oil expects to invest $1.7 billion in capital expenditures this year, which should help support future cash flow and dividend growth.
After adjusting for the divesture of XTO Energy Canada, Imperial Oil’s production totalled 404,000 gross oil-equivalent barrels per day, its highest Q2 in more than three decades.
During its Q2 earnings release, Imperial Oil stated, “In the first half of 2024, the price of crude oil remained relatively flat compared to the fourth quarter of 2023. The Canadian WTI/WCS spread continued to narrow in the second quarter, primarily due to additional pipeline capacity coming online. Refining margins fell as increasing supply more than met growing demand and geopolitical trade-flow disruptions lessened.”
What Next for IMO Stock?
Imperial Oil stated that its refinery throughput in Q2 averaged 387,000 barrels per day, and its capacity utilization was 89%, just below the year-ago utilization rate of 90%. The company continued to advance work on Canada’s largest renewable diesel facility, located in Strathcona. Once completed, the project is expected to have a capacity of more than one billion litres of renewable diesel each year.
Further, Imperial continues to develop a network of renewable diesel blending and offloading distribution terminals, which should raise future cash flows and dividends.
Analysts tracking IMO stock expect adjusted earnings to expand from $8.49 per share in 2023 to $7.79 per share in 2025. Priced at 13.6 times forward earnings, Imperial Oil stock is reasonably valued but trades at a 7% premium to consensus 12-month price target estimates.
