Canadian Natural Resources Limited CNQ is a major player in the oil and gas industry, involved in every step of the process, from finding and developing new energy sources to producing and selling crude oil and natural gas. The company operates in key regions like Western Canada, the North Sea and offshore Africa, giving it access to a variety of valuable resources, including Synthetic Crude Oil. CNQ focuses on low-cost, long-lasting projects, which helps it stay profitable even when energy prices fluctuate.
But as with any investment, it is essential to weigh both the strengths and potential risks. Is now the right time to hold the CNQ stock, or is it time to rethink your position? Let us take a closer look at the key factors influencing its performance, so you can make an informed decision about whether to buy, hold or wait.
What is Favoring CNQ Stock?
Record-High Production Fueling Growth: CNQ achieved record annual production of 1.36 million BOE/d in 2024, including 1 million bbl/d of liquids. The production in the fourth quarter was even higher at 1.47 million BOE/d, indicating strong growth across oil sands mining, thermal in-situ and conventional oil & gas operations. These high production levels provide stable revenue streams and free cash flow, ensuring long-term profitability and the ability to withstand oil price fluctuations.
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Low-Cost Structure Enhancing Margins: CNQ operates with one of the lowest cost structures in the industry, giving it a significant competitive advantage. Oil Sands Mining and Upgrading costs were C$22.88 per bbl in 2024 and even lower at C$20.97 per bbl in the fourth quarter. Additionally, thermal in-situ production costs dropped to C$11.04 per bbl. These efficiencies help CNQ maintain profitability even during low oil price environments, ensuring strong margins.
Strong Free Cash Flow Enabling Shareholder Returns: CNQ generated C$14.9 billion in adjusted funds flow in 2024, with C$4.2 billion in the fourth quarter, indicating its ability to generate strong cash flow. The company returned C$7.1 billion to its shareholders in 2024, including sizable dividend increases and aggressive share repurchases. With its strong free cash flow generation, CNQ can continue rewarding investors through higher dividends, buybacks and debt reduction, supporting long-term financial stability.
Pipeline Commitments Expanding Market Access: CNQ has secured 256,500 bbl/d of crude transportation capacity, reducing exposure to egress bottlenecks. It increased commitments on the Trans Mountain Expansion (“TMX”) pipeline to 169,000 bbl/d and on Flanagan South to 77,500 bbl/d, allowing access to higher-margin international markets. These strategic moves enable CNQ to capture stronger netbacks, reduce pricing risks and enhance profitability, making it a more attractive long-term investment.
Strategic Acquisitions for Long-Term Growth: CNQ completed the Chevron CVX acquisition in December 2024, adding a 70% stake in the Duvernay play and 20% in the Athabasca Oil Sands Project. A swap deal with Shell SHEL will soon give CNQ 100% control of the Albian mines, increasing zero-decline production by 31,000 bbl/d. These deals enhance long-term cash flow, reduce production costs and provide stable, high-margin assets, ensuring sustainable growth without major capital expenditures.
Red Flags Surrounding Canadian Natural
Recent Stock Performance Concerns: CNQ's share price has significantly underperformed in the past six months, decreasing 15.3%. This is notably worse than the Canadian Oil and Gas Exploration and Production sub-industry's decline of 9.9% during the same period. In contrast, Enerflex Ltd. EFXT has seen positive growth of 32.5%. This substantial underperformance by CNQ may indicate investor concerns and could potentially impact its valuation in the near term.
Six-Month Price Performance Comparison
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Declining Net Earnings and Profitability: CNQ reported C$6.1 billion in net earnings in 2024, down 26% from C$8.2 billion in 2023, indicating weaker profitability. In the fourth quarter, earnings fell 57% year over year to C$1.1 billion, indicating lower oil prices, foreign exchange losses and higher expenses. While the company remains profitable, earnings decline raises concerns about whether CNQ can maintain its historical growth trajectory, especially if oil prices remain volatile or decline further.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Exposure to Commodity Price Volatility: CNQ’s financial performance is heavily dependent on crude oil and natural gas prices. While the company has a low breakeven point, prolonged periods of weak pricing could pressure cash flow and profitability. Investors should consider this risk, especially if they are conservative or looking for less cyclical investments.
Limited International Expansion: Unlike competitors that have diversified into global markets, CNQ remains heavily reliant on North America, making it vulnerable to local economic slowdowns and policy changes. The company has no significant exposure to emerging markets, where oil demand is still growing rapidly. This lack of global diversification limits CNQ’s ability to capture new market opportunities, making it less competitive in a long-term scenario of shifting energy demand.
Pipeline Expansion Risks: CNQ’s growth strategy heavily depends on pipeline projects like TMX and its commitments to Gulf Coast refineries. However, if these projects face delays, cancellations or cost overruns, CNQ could experience bottlenecks in transporting crude to high-value markets. This could lead to higher storage costs, lower realized prices and increased exposure to regional price discounts, impacting near-term cash flow.
Verdict on CNQ Stock
CNQ has shown impressive growth, with record production levels in 2024 and an industry-leading low-cost structure that enhances profitability, even in volatile markets. The company’s strong free cash flow generation and strategic acquisitions provide stability and the ability to reward shareholders through dividends and share repurchases. Additionally, CNQ’s commitment to pipeline expansions and acquisitions of long-life assets like the CVX deal enhance its growth potential.
However, CNQ’s recent stock performance has been disappointing, underperforming compared with peers. Furthermore, its declining net earnings and exposure to commodity price volatility raise concerns about future profitability. Limited international expansion also restricts its growth and overreliance on pipeline projects, which could face delays or cost overruns, presents potential risks. Given this mix of strengths and potential challenges, investors should wait for a more opportune entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
