Canadian energy stocks have seen their prices struggling in recent months due to trade tensions and oil price fluctuations. However, buying stocks amid the sector’s current weakness might be a wise move.
The share price of Whitecap Resources (TSX:WCP) has dropped by 22.89% so far this year. However, after the company released a strong earnings report, analysts gave the stock a “buy” rating, with a 12-month average target price of $12.48, an upside potential of nearly 63%.
Based on the current share price of $7.66 per share and a dividend yield as high as 9.66% (monthly dividend), a single $2,000 investment will generate an annual dividend income of $193.20, or a monthly income of $16.10.
Whitecap Resources is an oil and liquid company with a market capitalization of $4.5 billion, focusing on production growth and sustainable dividends. This is one of the few Canadian energy stocks paying monthly dividends. The main objective of the management is to provide funds for capital expenditures and dividend payments within the scope of the capital flow.
In the first quarter of 2025 (the three months ending March 31, 2025), the company reported an 8.5% increase in oil and gas revenue compared to the first quarter of 2024, reaching $942.2 million. Net profit increased by 171.9% year-on-year to $162.6 million, and free cash flow reached $48.2 million, compared with a loss of $9.2 million in the same period of the previous year. It is worth noting that net debt decreased by 34% compared with the same period last year to $986.9 million.
Whitecap Resources announced on March 10 that it has reached an all-share merger agreement with Veren to form a leading producer of light oil and condensate oil with a market value of 15 billion Canadian dollars. This transaction was voted through by the shareholders of both companies.
The merged entity will own the best-quality liquid hydrocarbon asset portfolios of Montney and Duvernay in the western Basin of Canada, with average daily output exceeding 350,000 barrels of oil equivalent, and the proven reserve value exceeding $28 billion. The annualized synergy benefit is expected to reach $450 million, and the free cash flow yield is expected to increase to 18% in 2026.
The strategic focus after the merger is on the strength of the balance sheet, long-term organic growth in production and capital returns. The management will ensure that the cash flow fully covers capital expenditures and dividends paid to shareholders. The annual basic dividend of $0.73 per share will provide shareholders with a stable and reliable cash flow throughout the commodity price cycle.
TD Securities’ energy team led by Mark McCormick, pointed out in a report that Whitecap Resources’ current price-to-book ratio of 0.8 times is significantly lower than the industry average of 1.3 times.
Considering its post-merger scale effect and the narrowing trend of the discount on Canadian crude oil, it is estimated that EV/EBITDA will be compressed to 4.1 times in 2025, corresponding to a stock price recovery space of 82%. Thus, this presents a buying opportunity of the stock when the price is still cheap.
