Canadian Natural Resources (CNQ – Free Report) was recently named to Zacks.com’s list of Most Searched Stocks. Therefore, you should consider some of the key factors that could influence the stock’s performance in the near future.
Shares in this oil and natural gas company have returned +5.9% over the past month, while the Zacks S&P 500 Composite is up +2.2%. Canadian industry Zacks Oil and Gas – Exploration and Production, which includes Canadian Natural Resources, is up 8.6% over the period. The key question now is: Where could the stock head in the short term?
While news releases or rumors of a material change in a company’s business prospects will usually “trend” the stock and result in an immediate price change, there are always some basic facts that ultimately drive the buy-and-hold decision.
Revisions to earnings estimates
Here at Zacks, we prioritize evaluating the change in forecasting a company’s future earnings over anything else. That’s because we believe the present value of its future earnings streams determines the fair value of its stock.
Essentially, we look at how sell-side analysts who cover the stock are revising their earnings estimates to reflect the impact of recent business trends. And when earnings estimates for a company go up, the fair value of its stock goes up. A higher fair value than the current market price attracts investors to buy the stock, causing the price to rise. For this reason, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Canadian Natural Resources is expected to report earnings per share of $1.75 for the current quarter, down -0.6% year-on-year. In the last 30 days, the Zacks consensus estimate is down -5.6%.
For the year-to-date, the consensus earnings estimate of $8.38 indicates a +67.9% year-on-year change. In the last 30 days, this estimate has changed by -10.9%.
For the next fiscal year, the consensus earnings estimate of $6.86 shows a change of -18.2% from what Canadian Natural Resources is expected to report a year ago. Over the past month, the estimate has changed by -10.9%.
Our proprietary stock ranking tool, the Zacks Rank, has a strong, third-party audited track record and provides a more meaningful picture of a stock’s near-term price action by effectively harnessing the power of earnings estimate revisions. Canadian Natural Resources is rated Zack’s #3 (Hold) based on the magnitude of the recent change in consensus estimates, as well as three other factors related to earnings estimates.
The chart below shows the development of the company’s 12-month consensus EPS estimate:
12 Month EPS
Projected sales growth
While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow its revenue. It’s almost impossible for a company to grow its profits without increasing its revenue over long periods of time. Therefore, knowing a company’s potential revenue growth is crucial.
For Canadian Natural Resources, the consensus revenue estimate for the current quarter of $7.03 billion indicates a -4.3% change from a year earlier. For the current and next fiscal year, estimates of $31.4 billion and $26.2 billion indicate changes of +30.8% and -16.6%, respectively.
Latest reported results and surprise history
Canadian Natural Resources reported revenue of $8.02 billion for the most recent quarter, a +30.9% year-over-year change. EPS of $2.37 for the same period compared to $1.41 a year ago.
Compared to the Zacks Consensus estimate of $7.98 billion, reported earnings represent a +0.5% surprise. EPS surprise was +13.4%.
The company beat consensus estimates for earnings per share in each of the last four quarters. The company beat consensus sales estimates every time during this period.
No investment decision can be efficient without considering a stock’s valuation. When predicting the future price development of a stock, it is crucial to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Comparing the current values of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its own historical values will help determine if the stock is fair valued, overvalued or undervalued. Comparing the company versus its peers using these parameters gives a good sense of the reasonableness of the stock price.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups from A to F (A is better than B; B is better than C; and so on), making it helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.
Canadian Natural Resources is rated B on this front, indicating it is trading at a discount to its peers. Click here to view the values of some of the assessment metrics that led to this grade.
The facts discussed here and much other information on Zacks.com may help determine whether or not Canadian natural resource market activity is worth paying attention to. However, its No. 3 Zacks rank suggests that it could move in line with the broader market in the near future.