Written by SmallCapPower.com

Crescent Point Energy Corp.’s (CPG) (TSX:CPG) stock price is up nearly 12% from our initial report on August 24, 2017, trading currently at C$9.70. Despite the decent move, the stock trades at a third of its price of about C$40 in the ‘glory’ days of 2013-14, and looks significantly undervalued given its quality assets, continued successful execution of its new organic growth strategy (2017 exit production to rise 10%), and a decent (~4.0%) dividend yield. Additionally, a continued rise in the oil price could significantly improve its margins and earnings in 2017 and beyond. Investors could enter the stock at current levels and potentially see significant appreciation over the next year as operational and financial performance improves considerably.

Investment thesis

• Organic growth strategy continues to deliver positive results
• High dividend yield
• Undervalued compared to peers

Crescent Point stock seems to have bottomed out

Although Crescent Point Energy has underperformed its peers over the past several years on low oil prices, dividend cuts and large equity investments in acquisitions, the stock seems to have bottomed out recently in August 2017. Since our initial report on August 24, 2017, the stock is up 12%, and has gained 17% over the past month on rising oil prices (WTI reaching US$50/bbl from $45/bbl) as well as the Company’s new commitment and continued success in executing its organic growth strategy. However the increase in share price is small and is negligible compared to the peak price of C$40 in 2014, thereby offering significant scope of continued upside on the back of rising oil prices and implementation of its new organic growth strategy.

Successful execution of organic growth strategy; 2017 exit production growth pegged at 10%

As Crescent Point Energy continues to execute its renewed organic growth strategy, significant operational potential exists driven by its Uinta Basin and Flat Lake properties. Crescent Point Energy reported a 5% increase in production for 2Q17 to 175,615 boe/d, and consequently the full-year 2017 guidance has been upwardly revised to 174,500 boe/d from 172,000 boe/d. One of the 2017 priorities for the Company is to execute organic exit production growth of 10%.

Uinta Basin – key catalyst: Crescent Point Energy has achieved excellent horizontal well results in the Uinta Basin, with a recent one-mile well generating IP 30 rates of 2,000 boe/d, above the industry standard of 2,000 boe/d on two-mile wells. With this success, the Company is projecting a 25% growth in production within a five-year plan for the basin, with 2017 exit production jumping 50% to 19,000 boe/d. Investors are ignoring the vast potential of the Uinta Basin, which according to estimates could be 30 billion barrels of Original Oil In Place (OOIP).

Stacked Pay Comparison – Major North American Shale Plays

Flat Lake: Flat Lake continues to expand with step-out drilling and the optimization of completions processes, and Crescent Point Energy is expecting production to increase at ~23% within the five-year plan.

Major Resource Plays – Growth by Area

Good dividend yield

Crescent Point Energy pays an annual dividend of C$0.30 per share and has a dividend yield of 3.7% at the current market price of C$9.70. In the ‘glory’ days of 2013-14 when the stock traded at C$40, the dividend payout was as high as C$0.23, which was later cut to $0.10 as oil prices fell. However, going forward, dividend payouts could increase on cash-flow improvements due to production expansion and margin improvement in 2017 and beyond.

High Institutional ownership

High institutional ownership indicates that endowments and hedge funds believe the stock is poised for long-term growth. Institutions held ~ 40.0% of Crescent Point Energy outstanding shares as of June 2017. A number of key funds increased their positions during the second quarter, including Franklin Resources Inc. (BEN) (added 8.6 mn shares to 19.4 mn) and Mackenzie Financial Corp (added 1.8 mn shares to 14.1 mn shares). On the flip side, insiders hold less than 1% of the Company’s outstanding shares.

Valuation and outlook

Crescent Point Energy is well positioned to deliver growth in 2017 and beyond, as its renewed organic growth strategy continues to deliver strong operational performance, with production and margins improving in 2Q17 along with an upward revision in production for 2017. Investors are also ignoring the significant potential of the Uinta Basin, which continues to deliver strong well results. The recent increase in stock price of ~17% over the past month is a fraction of what it used to trade in the ‘glory’ days, and Crescent Point Energy stock appears extremely undervalued compared to its peers in terms of Price-to-Sales and EV/EBITDA multiples.