Athabasca Oil (TSX:ATH) Following Q2 Results And High End Guidance, Is The Valuation Fair?

Athabasca Oil (TSX:ATH) has moved into focus after its latest second quarter update, which combined lower revenue and production with higher net income and confirmed full year production guidance at the high end of its target range.

See our latest analysis for Athabasca Oil.

The earnings update and high end production guidance appear to have reset expectations for Athabasca Oil, with the stock up 5.15% on a 1 day share price basis to CA$10.42. The year to date share price return of 45.94% sits alongside a very large 5 year total shareholder return, suggesting strong long term momentum even though the 90 day share price return is down 12.22%.

If Athabasca Oil’s move has you looking across the energy value chain, this could be a good time to size up 89 nuclear energy infrastructure stocks

The recent move in Athabasca Oil lifts the stock well above where some models place intrinsic value, while analyst targets still sit higher. So where does fair value really fall inside that spread?

Price-to-Earnings of 21.9x: Is it justified?

Athabasca Oil currently trades on a P/E of 21.9x, which places the CA$10.42 share price at a premium to the broader Canadian Oil and Gas industry but slightly below the peer group average.

The P/E ratio compares the current share price to earnings per share. For a producer like Athabasca Oil, this multiple reflects what the market is willing to pay today for each dollar of current earnings, given its oil and gas asset base and forecast growth profile.

Statements indicate that Athabasca Oil is considered expensive against the Canadian Oil and Gas industry average P/E of 20x, yet still described as good value versus a closer peer set on 23.4x. That peer comparison suggests the market is already pricing in stronger earnings growth than the wider industry, but still leaves some room before it reaches the level that similar companies trade on. Relative to an estimated fair P/E of 27.8x, the stock also screens as cheaper than the level regression analysis suggests the ratio could move toward over time.

Explore the SWS fair ratio for Athabasca Oil

Result: Price-to-Earnings of 21.9x (ABOUT RIGHT)

However, Athabasca Oil’s narrative could be challenged if commodity prices weaken, or if production from its Athabasca or Duvernay Energy segments falls short of expectations.

Find out about the key risks to this Athabasca Oil narrative.

Another View on Athabasca Oil’s Value

The SWS DCF model paints a very different picture for Athabasca Oil. At CA$10.42, the stock is trading well above an estimated future cash flow value of CA$5.09, which implies it screens as overvalued on this method. How much weight should you really put on that gap?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Athabasca Oil for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 13 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment on Athabasca Oil clearly mixed, use this moment to review the numbers yourself and decide how the story fits your portfolio. To balance the upside and downside, take a closer look at the 2 key rewards and 1 important warning sign.

Looking for more Athabasca Oil investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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