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Why Cenovus Energy Inc. Might Keep Sliding

By Brian D. Pacampara, CFA – Feb 14, 2014 at 1:00PM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Cenovus Energy (CVE -1.67%) slipped slightly on Friday after TD Securities downgraded the bitumen, oil, and gas developer from buy to hold.

So what: Along with the downgrade, analyst Menno Hulshof lowered his price target to $35 (from $38), representing about 33% worth of upside to yesterday's close. While contrarians might be attracted to Cenovus' steady decline over the past year, Hulshof thinks a rebound might take longer than expected given yesterday's outlook from management.

Now what: According to TD, Cenovus' risk/reward trade-off is pretty balanced at this point. "Although our long-term investment thesis has not changed and we believe that these issues likely prove to be nothing more than a short-term challenge, we acknowledge that it may take some time for CVE to prove that the fundamental [Foster Creek] outlook has not changed," noted Hulshof. "More specifically, FC [steam-to-oil ratio] and sustaining capital costs are not expected to normalize until early 2015, while optimization work has been deferred until its new operating procedures have been assessed." With the stock flirting with its 52-week lows and boasting a 3%-plus dividend yield, however, those short-term concerns might provide energy-savvy Fools with a juicy long-term income opportunity.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Cenovus Energy Stock Quote
Cenovus Energy
CVE
$17.72 (-1.67%) $0.30

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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