8 Most Undervalued Oil Stocks To Buy According To Analysts

05. Obsidian Energy Ltd. (NYSE:OBE)

Upside Potential: 59%

Forward Price to Earnings (P/E) ratio: 2.93

Number of Hedge Fund Holders: 11

Obsidian Energy Ltd. (NYSE:OBE), headquartered in Calgary, Canada, stands out as a compelling investment in the oil sector. With a forward P/E ratio of just 2.93 as of October 14, and an impressive 59% upside based on a target price of $9.76 compared to the current price of $6.12, Obsidian makes a solid case for inclusion in the list of undervalued oil stocks. Specializing in the exploration and production of oil and natural gas in Western Canada, the company has grown significantly since rebranding from Penn West Petroleum in 2017.

The second quarter of 2024 was a turning point for Obsidian Energy Ltd. (NYSE:OBE), delivering its highest production levels since 2016. Production increased by 15% year-over-year to 35,773 boe/d, driven by the strategic Peace River Clearwater acquisition and active drilling programs. This acquisition alone contributed 1,700 boe/d to the company’s output and added valuable reserves and land, boosting future development potential in the Clearwater and Bluesky formations.

Despite facing temporary production blockades, Obsidian Energy Ltd. (NYSE:OBE) generated funds from operations (FFO) of $115.2 million ($1.51 per share), up 32% from the previous year. Higher oil prices and expanded production capacity were key drivers behind this performance. While increased royalties and transportation costs impacted margins slightly, the company’s ability to maintain cost control resulted in reduced net operating costs to $13.83 per boe, compared to $15.06 last year.

Obsidian Energy Ltd. (NYSE:OBE) capital spending reached $59.2 million in the quarter, supporting new well completions and the tie-in of promising fields at Peace River. Notably, the company has maintained an aggressive share buyback program, repurchasing 0.8 million shares in Q2 and reducing outstanding shares by 6.9 million since 2023.

The company’s debt levels increased to $432.5 million following the Peace River acquisition, but management plans to use free cash flow for debt reduction and further share repurchases. With expanding production and stabilized cash flows, Obsidian’s net debt-to-FFO ratio is expected to improve in the coming quarters.

In summary, Obsidian Energy Ltd. (NYSE:OBE) combination of undervaluation, growing production, disciplined capital management, and long-term development plans makes it a prime candidate for investors seeking undervalued oil stocks with significant upside.