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Cenovus Energy Inc CVE

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Morningstar’s Analysis

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Increasing Our Fair Value Estimate for Cenovus Energy; Stock Looks Undervalued

Joe Gemino, CPA Senior Equity Analyst

Analyst Note

| Joe Gemino, CPA |

We are increasing our fair value estimate for no-moat Cenovus Energy to $8 (CAD 10.50) from $6.50 (CAD 9). Our higher fair value is driven by increased near-term commodity price forecasts along with an increase in our long-term U.S. Gulf Coast pricing for heavy oil. Trading near $6.50 (CAD 8.50) per share, we see nearly 25% upside in the stock. We think the market underappreciates the company’s long-term cash flow potential. We think that Cenovus’ best-in-class supply costs will enable it to generate enough cash flow to reshape its balance sheet and position itself for growth once new pipes are built. The company's conversion to its solvent-aided process should further decrease supply costs and drive increased netbacks, even without pipeline expansion.

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Company Profile

Business Description

Cenovus Energy is an integrated oil company, focused on creating value through the development of its oil sands assets. The company also engages in production of conventional crude oil, natural gas liquids, and natural gas in Alberta, Canada, with refining operations in the U.S. Net upstream production averaged 452 thousand barrels of oil equivalent per day in 2019, and the company estimates that it holds 6.9 billion boe of proven and probable reserves.

225 - 6 Avenue SW, Suite 4100
Calgary, AB, T2P 1N2, Canada
T +1 403 766-3770
Sector Energy
Industry Oil & Gas Integrated
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 2,361