These days, the oil industry isn’t exactly winning popularity contests on Wall Street. Investors are concerned about the future of energy demand, which has led to many oil stocks being valued lower than one might expect.
Take Chord Energy (Nasdaq: CHRD), for example. It’s a company that primarily operates in North Dakota’s Williston Basin and has been posting impressive results. Yet, its share prices have been trending downward.
In 2022, Chord Energy came into being through the merger of Oasis Petroleum and Whiting Petroleum. More recently, it expanded by acquiring Enerplus, an oil and gas producer. These strategic moves have positioned Chord as a major player in the Bakken region, with operations spanning over 1.3 million net acres and a production rate of around 280,000 barrels of oil equivalent per day.
Chord Energy’s latest performance indicates the company is thriving. In the third quarter, oil production hit the upper end of expectations at 158,800 barrels daily, while capital expenditures undercut forecasts, landing at $329 million. Impressively, Chord generated free cash flow amounting to $312 million, and they distributed 75% of that to shareholders via dividends and share buybacks. The company is also gaining ground by drilling more extended horizontal wells; their three-mile laterals are outperforming expectations.
The company’s leadership seems very optimistic, as demonstrated by their recently unveiled three-year plan. This strategy aims to maintain stable oil production through 2027, with an annual capital spending target of $1.4 billion.
These indicators might suggest that Wall Street is overlooking something significant—and The Value Meter concurs.
Let’s dive into Chord’s valuation. The enterprise value-to-net asset value (EV/NAV) ratio for Chord stands at a mere 0.87. That’s a significant markdown from the industry standard of 7.89 among firms with positive net assets. Essentially, one could theoretically purchase all of Chord’s assets for less than their recorded book value, which is an uncommon situation.
Although Chord’s cash generation has been good, it hasn’t been extraordinary. Its free cash flow has averaged about 3.79% of its net assets over the past four quarters, which is roughly half of the peer average at 7.84%. Though we would prefer higher numbers, Chord’s consistent cash flow paired with its extremely low valuation still presents an intriguing investment opportunity.
Even with the broader market hesitancy about oil producers, Chord stands out. It offers a unique combination of high-quality assets, operational prowess, and a management team that prioritizes shareholders—all while being significantly undervalued.
For those investors who are ready to see beyond the current negativity surrounding the energy sector, Chord Energy might just be a worthwhile consideration.
The Value Meter has tagged the stock as “Slightly Undervalued.”
If you have another stock in mind that you’d like me to evaluate using The Value Meter, feel free to let me know!
