2. Ovintiv Inc. (NYSE:OVV)
Number of Hedge Fund Holders: 44
PE Ratio: 9.71
Ovintiv Inc. (NYSE:OVV) markets oil and natural gas. On February 24, the company posted earnings for the fourth quarter of 2021, reporting earnings per share of $5.21, beating analyst expectations by $3.66. The firm also said it planned to spend $1.5 billion in capital spending for 2022, largely in line with 2021 levels. It is also expected to generate nearly $3 billion in free cash flow this year, a target that is nearly 30% of the market cap.
On March 31, Mizuho analyst Vincent Lovaglio kept a Buy rating on Ovintiv Inc. (NYSE:OVV) stock and raised the price target to $78 from $54, noting that the target increase wad “driven by an increase in estimated US unconventional oil volume growth and the resulting expected increase in capital intensity”.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Two Sigma Advisors is a leading shareholder in Ovintiv Inc. (NYSE:OVV) with 2.5 million shares worth more than $87 million.
At the end of the fourth quarter of 2021, 44 hedge funds in the database of Insider Monkey held stakes worth $1 billion in Ovintiv Inc. (NYSE:OVV), the same as in the previous quarter worth $684 million.
In its Q4 2021 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Ovintiv Inc. (NYSE:OVV) was one of them. Here is what the fund said:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv Inc. (NYSE:OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. Ovintiv Inc. (NYSE:OVV) exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), Ovintiv Inc. (NYSE:OVV) guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
