Canada has vast amounts of natural resources which are yet to be explored. However, some Canadian energy companies have extreme valuations compared to their U.S. counterparts. It is quite hard to understand why investors look for over-priced Canadian companies, given reasonably priced alternatives. Here is a list of 7 highly-overpriced Canadian energy companies (Data from Finviz) which might suffer the most in case of a market correction. These companies either have low current ratios or high debts, high current or forward P/E ratios, and high PEG values:
Suncor Energy Inc. (SU): Formerly known as Suncor Inc, Suncor Energy is an integrated energy company. Stifel Nicolaus, Collins Stewart and Deutsche Securities recommend holding SU shares (which means sell). The Calgary-based company has a 25.72 P/E ratio, and 2.34 PEG value. Its P/C value is also high at 64.11. It is better staying neutral to Suncor Energy until all the turmoil in the MidEast shakes out. The stock is already up by 45% in the last 6 months. Shares are priced for at least 15% annual EPS growth, which is hard to believe given the past performance. Even though the company decreased its total and long term debts from the 4rd quarter of 2009 to 2nd quarter of 2010, debts started rising since the 3rd quarter of 2010.
Penn West Petroleum Ltd. (PWE): Formerly known as Penn West Energy Trust, Penn West Petroleum explores and products oil and natural gas in North America. The company has a trailing ratio of 46.56, and a PEG value of 1.96. UBS recommends selling PWE shares, while Stifel Nicolaus suggests holding and Credit Suisse suggests staying neutral. Penn West had -11.88% EPS growth during the last five years, while its quarterly earnings decreased by -60.97%. It has a current ratio of 0.58, and an operating margin of -3.70%. PWE reduced its dividends from 15¢ to 9¢. Penn West’s total and long-term debts have been unstable for the last three quarters as there have been sharp ups and downs. Staying neutral seems like the best bet for Penn West.
Precision Drilling Trust (PDS): PDS provides onshore drilling, well servicing and ancillary oilfield services. Having a high P/E ratio of 68.82, Precision is another over-priced Canadian with a PEG value of 6.88. The company had -33.38% EPS growth during the last five years, and this year’s earnings decreased by -65.02%. Deutsche Bank, downgraded PDS in September . Normally, one will expect a decline in the stock prices after a downgrade. However, since then, stock is up by 150%, showing the speculative nature of PDS shares. The technical graph shows a lot of inter-day gaps, which will be closed in the first correction.
Enerplus Corp. (ERF): Formerly known as Enerplus Resources Fund, Enerplus Corp. owns probable reserves of across North America. ERF has a trailing ratio of 43.05, and a forward P/E ratio of 30.46. The PEG value of the company is 1.52, while the company reduced its dividend payments from 25¢ to 18¢. ERF’s P/C value is 261.92, and current ratio is 0.47. The P/E ratios show that the company is priced for at least 25% EPS growth for the next 5 years. However, ERF had an annualized EPS growth of -16.25% during the last five years. Current ratio of 0.47 shows the company is in serious debt. Its total and long-term debts kept increasing, except for minor decreases, for the last five quarters straight.
Enbridge, Inc. (ENB): ENB, formerly known as IPL Energy Inc., transports and distributes crude oil and natural gas in Canada and the U.S. ENB’s trailing ratio is 29.09, and PEG value is 3.20. Enbridge’s earnings decreased by -55.59% this year, and -24.88 this quarter. ENB’s P/C value is 98.51, debt-to-equity value is 2.01, while long-term debt-to-equity is 1.93. During the last five quarters, its total and long-term debts have increased by 6.5% and 11.3%, respectively. Enbridge’s debt-to asset value is strolling about 50% during the last five quarters.
Canadian Natural Resources, Ltd. (CNQ): Canadian Natural Resources, founded in 1973, explores, develops, and products crude oil and natural gas. Having a 28.63 P/E ratio, CNQ has a PEG value of 2.39, and a P/C value of 2224.37. The company had a -191.06 EPS growth this quarter, while the P/FCF value is 75.64. The Calgary-based CNQ’s quick ratio is 0.49, and current ratio is 0.69. Stifel Nicolaus downgraded Canadian Natural to neutral (which means sell). Although the total and long-term debt amounts are lower, when compared to five quarters before, the company couldn’t catch a steady downgrading process for its debts, as there have been some thought-provoking increases over the period.
Imperial Oil Ltd. (IMO): As a subsidiary of Exxon Mobil Corp (XOM), IMO is in the business of exploring, producing and selling crude oil and natural gas in Canada. BMO Capital Markets and RBC Capital have recently reduced their recommendation levels. Although IMO has an acceptable trailing ratio of 19.43, it has quite a high P/C ratio of 159.88, and its sales had a -2.32% growth over the past five years. Current ratio of 0.77 shows that the company has only 77 cents for each dollar of current debt. From a technical perspective, the shares double topped in the last two months. Staying neutral is the best for now given the technical double-top graph. Its total debt amount had a whopping increase of 81.49% over the last five quarters.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.