3. Ovintiv Inc. (NYSE:OVV)
Third Point’s Stake Value: $121.658 million
Percentage of Third Point’s 13F Portfolio: 1.58%
Number of Hedge Fund Holders: 44
Ovintiv Inc. (NYSE:OVV) is an American hydrocarbon exploration company headquartered in Denver. In 2021, the company’s average petroleum, natural gas liquids, and natural gas production was around 533.9 thousand BOE per day. Furthermore, the company owns approximately 1.3 million net acres of land in Canada and close to 929,000 net acres of land in the United States.
On May 9, Ovintiv Inc. (NYSE:OVV) announced its second dividend raise in six months. Previously, the company increased its quarterly dividend from $0.14 to $0.20 in March. The most recent quarterly dividend of $0.25 was paid out on June 30 to the shareholders of record on June 14. As of July 21, the company has a dividend yield of 2.20%.
On July 19, BofA analyst Doug Leggate upgraded Ovintiv Inc. (NYSE:OVV)’s shares to Buy from Hold. However, the analyst reduced his price target for the firm to $60 from $65. The analyst added that he sees justifications for defensive positioning in the US oils.
Here is what Miller Value Partners said about Ovintiv Inc. (NYSE:OVV) in its fourth-quarter 2022 investor letter:
“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 (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. 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), the company 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.”
