The oil industry isn’t exactly a Wall Street darling these days. With investors fretting about long-term energy demand, many oil stocks are trading at depressed valuations.
Chord Energy (Nasdaq: CHRD), which operates primarily in North Dakota’s Williston Basin, has seen its shares drift lower despite delivering impressive results.
The company was formed through the merger of Oasis Petroleum and Whiting Petroleum in 2022, and it recently bulked up further by acquiring oil and gas producer Enerplus. Through these deals, Chord has emerged as one of the largest producers in the Bakken region, operating over 1.3 million net acres and producing around 280,000 barrels of oil equivalent per day.
Recent results show a company firing on all cylinders. Third quarter oil volumes came in near the high end of guidance at 158,800 barrels per day, while capital spending fell below expectations at $329 million. The company generated robust free cash flow of $312 million and returned 75% of it to shareholders through dividends and buybacks. It’s also seeing encouraging results from drilling longer horizontal wells, with its latest three-mile laterals performing even better than expected.
Management’s confidence is clear from their newly announced three-year outlook, which targets steady oil production through 2027 with annual capital expenditures of $1.4 billion.
These strong figures suggest that Wall Street may be missing something here – and The Value Meter agrees.
Let’s turn to Chord’s valuation. The company’s enterprise value-to-net asset value (EV/NAV) ratio sits at just 0.87, a remarkable discount to the industry average of 7.89 for companies with positive net assets. In other words, you could theoretically acquire all of Chord’s assets for less than their stated book value. That’s extremely rare.
The company’s cash generation has been solid, but not spectacular. Its free cash flow has averaged 3.79% of its net assets over the past four quarters, about half of the peer average of 7.84%. That’s lower than we’d like, but Chord’s steady cash flow coupled with its rock-bottom valuation still makes for a compelling investment case.
Despite the market’s concerns about oil producers, Chord appears to offer that increasingly rare combination of quality assets, operational excellence, and a shareholder-friendly management team – all at a significant discount.
For investors who are willing to look past the energy sector’s current unpopularity, Chord Energy may offer an interesting opportunity.
The Value Meter rates the stock as “Slightly Undervalued.”
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