Stock of the Week: Husky

Or should we say, Cenovus, looks well-positioned to benefit from a potential oil shortage

Andrew Willis 30 November, 2020 | 4:38AM
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Andrew Willis: The acquisition of Husky Energy by Cenovus Energy currently scheduled for early 2021 looks to have been impeccably timed.

We had expected one or more successful vaccines to be deployed in the first half of next year, and with the recent news on vaccines from Pfizer, Moderna and BioNTech, that looks to be on track. And once broad vaccination occurs, economic activity has the potential to return - followed by oil demand.

But this restoration of demand could be met with much less supply than we saw pre-pandemic, reminds equity analyst Preston Caldwell. Drilling activity collapsed this year, and unless it somehow comes back quickly from where it is now, the oil glut will turn into a shortage.

And an oil shortage will see prices rise – just as a giant integrated energy company comes online.

We see significant upside for both companies, with Husky at a 36% discount as the company continues to improve cost efficiencies to bring break-even prices around 31 U.S. dollars a barrel. Meanwhile, we think Cenovus is similarly undervalued and we think the market is overlooking their long-term cash flow potential from the oil sands and their industry-leading cost structure.

Now, combine the competencies of these two companies with our midcycle oil price forecast of 55 U.S. dollars a barrel for West Texas Intermediate (WTI), and you’ll see there’s plenty in the pipeline for investors.

For Morningstar, I’m Andrew Willis.


Editor's Note: All images are courtesy of and AP Images. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Cenovus Energy Inc28.85 CAD-0.07

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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