Challenging Industry Scenario to Impact Profitability: Ovintiv Inc. (TSX: OVV) operates in the exploration and production of crude oil and related products and has operations across the USA and China.

OVV announced a quarterly dividend of US$0.09375 per share, paid on March 31, 2020. Meanwhile, during Q4 FY19, the company repurchased ~13% of shares outstanding through equity buyback program while returned more than US$ 1.35 billion to stockholders in FY19, including US$ 102 million in the form of dividends.

The company recently announced to further cut down its capital expenditure by US$200 million for Q2FY20, resulting in a reduction of US$500 million in the capital expenditure for the above quarter. The company expects a reduction in the cash costs by US$ 100 million for FY20. As per the guidance, For FY20, the group expects its liquids production volumes in the range of 318.0 Mbbls/d to 332.0 Mbbls/d and natural gas production volumes in the range of 1,520 MMcf/d to 1,580 MMcf/d.

FY19 Financial Highlights: OVV declared its full-year results, wherein the company reported total revenue of US$6,726 million, improved from US$5,939 million in FY19. The increase was driven by 9% higher crude oil and condensate production and improvement. Operating income stood lower at US$ 598 million, as compared to US$1,694 million in FY18 due to increased operating expenses. Net earnings stood at US$234 million, witnessed a stiff decline from US$1,069 million in FY18, due to the combined effect of foreign exchange losses, higher interest costs and higher operating expenses.

FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of OVV is quoting at CAD 4.5 with a market capitalization of 1.17 billion. The stock corrected by 84.77% and 90.16% in the last six months and one year, respectively. The stock bounced back and delivered a 12.5% return in the last five trading sessions, while remained 10.71% lower than the sectorial return. The stock is trading at the lower band of its 52-week trading range of CAD 51.75 and CAD 2.95. The group operates in the exploration and production activity of crude oil and derivatives while the income of the company is co-related with the global crude oil prices. Due to the stiff correction in the crude oil prices, the stock was hammered, resulting in a big-time price correction. We expect, the macro factors are likely to remain challenging during FY20 and expect the volatility to persist for the crude oil prices. In order to combat the present scenario, OVV is cutting down its capital expenditure for Q2FY20. Considering the aforesaid facts, gloomy industry outlook and recent trading levels, we recommend a wait and watch stance on the stock at the closing market price of CAD 4.50 as on 02 April 2020.

OVV One-Year Daily Price Chart (Source: Thomson Reuters)

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