Joe Gemino: Husky remains our top pick among the major Canadian integrated firms. The stock trades at a modest discount of 10% to our fair value estimate and below the industry average of a 20% premium. While the company's major growth projects face an uncertain time horizon, we believe that the market is overlooking Husky's ability to generate free cash flow in the low oil price environment.
Although production is expected to decline this year, Husky is continuing to further its strategic transition toward low sustaining capital production, including oil sands production. Improved efficiency on oil sands production affords the company with break-even prices of sub-$40 a barrel, U.S. WTI prices, at current production levels, which compares favorably to its peers. Furthermore, free cash flow growth holds the opportunity for reinstatement of the dividend.
Husky's integrated operations should not be overlooked. The integrated operations help mitigate market volatility and capture refined product pricing for the company's crude oil production. Ownership of midstream and downstream assets allows the company to control the transport of its own production, lowering the overall cost structure and capturing higher price realizations.