CENOVUS ENERGY INC. $31 - Toronto symbol CVE

CENOVUS ENERGY INC. $31 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 755.6 million; Market cap: $23.4 billion; Price-to-sales ratio: 1.3; Dividend yield: 3.1%; TSINetwork Rating: Average; www.cenovus.com) operates three heavy oil projects in Alberta and one in Saskatchewan. It gets about half of its output from the oil sands. Conventional oil and natural gas wells supply the other half.

U.S.-based ConocoPhillips (New York symbol COP) owns 50% of Cenovus’s main Foster Creek and Christina Lake oil sands projects in Alberta. These properties produce heavy bitumen, which Cenovus ships to its 50%-owned refineries in Illinois and Texas. ConocoPhillips recently spun off its refining operations as a separate company called Phillips 66 (New York symbol PSX). This new firm owns the other 50% of these refineries.

Cenovus continues to increase its oil sands output. In the first three months of 2013, it produced 271,100 barrels of oil equivalent a day (66% oil and 34% gas), up 3.1% from 262,900 barrels a year earlier.

The company ships about 15% of its daily oil production by pipelines, railcars and barges to ocean ports. Shipping its oil overseas lets the company sell at international prices, which are currently about 50% to 80% higher than the Western Canadian benchmark price.

However, lower overall oil prices still cut Cenovus’s revenue by 5.4% in the latest quarter, to $4.3 billion from $4.6 billion a year earlier. Even so, earnings rose 15.0%, to $391 million, or $0.52 a share. That’s mainly because profits jumped 116.6% at the company’s refineries, which supplied 66% of its revenue and 64% of its earnings in the latest quarter. A year earlier, Cenovus earned $340 million, or $0.45 a share. Cash flow per share rose 7.6%, to $1.28 from $1.19.

Cenovus will probably earn $1.99 a share in 2013, and the stock trades at 15.6 times that estimate. It’s also attractive at just 6.3 times its projected cash flow of $4.94 a share.

The company recently increased its quarterly dividend by 10.0%, to $0.242 a share from $0.22. The new annual rate of $0.97 yields 3.1%.

Cenovus is a buy.

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