Is It Too Late To Consider Canadian Natural Resources (TSX:CNQ) After A 57% One-Year Rally?

• If you are wondering whether Canadian Natural Resources at around C$64.74 is still offering value after its strong run, you are not alone.
• The stock has pulled back about 4.7% over the last week, yet remains up 6.7% over the last month, 37.4% year to date, and 57.8% over the past year. This naturally raises questions about how much upside or risk is now priced in.
• Recent coverage has focused on Canadian Natural Resources as a large integrated energy producer, with attention on how its asset mix and capital allocation choices fit into investor demand for cash returns and balance sheet resilience. This context helps explain why the share price has shown both strong multi year returns of about 100.5% over three years and 278.3% over five years, as well as shorter term swings.
• On Simply Wall St’s valuation checks, Canadian Natural Resources scores a 5 out of 6. The next sections will walk through the different valuation methods behind that score and then finish with a broader way to think about what the current price really implies.

Find out why Canadian Natural Resources’s 57.8% return over the last year is lagging behind its peers.

Approach 1: Canadian Natural Resources Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes estimates of the cash a company could generate in the future and discounts those amounts back to today using a required rate of return. The goal is to translate a series of future cash flows into a single present value per share.

For Canadian Natural Resources, Simply Wall St uses a 2 Stage Free Cash Flow to Equity model. The latest twelve month free cash flow is about CA$7.9b. Analyst and extrapolated projections in the model show annual free cash flow figures generally in the CA$8b to CA$11.9b range over the next decade, with CA$8.6b projected for 2030. Cash flows beyond the explicit analyst horizon are extrapolated by Simply Wall St rather than based on new analyst reports.

Pulling those projected cash flows together, the model arrives at an estimated intrinsic value of CA$96.15 per share. Compared with the recent share price around CA$64.74, the DCF output suggests the stock is about 32.7% undervalued based on these assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Canadian Natural Resources is undervalued by 32.7%. Track this in your watchlist or portfolio, or discover 8 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Canadian Natural Resources.

Approach 2: Canadian Natural Resources Price vs Earnings

For profitable companies, the P/E ratio is a straightforward way to connect what you pay for the stock with the earnings it currently generates. It gives you a quick sense of how many dollars investors are willing to pay today for each dollar of earnings.

What counts as a normal or fair P/E depends on what investors expect from a company. Higher expected growth or lower perceived risk can justify a higher P/E, while lower growth or higher risk usually calls for a lower P/E.

Canadian Natural Resources currently trades on a P/E of about 13.9x. That sits below the Oil and Gas industry average of about 25.2x and the broader peer group average of roughly 27.4x. Simply Wall St also provides a proprietary Fair Ratio of 18.1x, which reflects factors such as earnings growth, profit margins, industry, market cap and specific risks.

This Fair Ratio goes further than a simple peer or industry comparison because it is tailored to the company rather than just applying a sector average. Comparing the current P/E of 13.9x with the Fair Ratio of 18.1x points to Canadian Natural Resources trading below that implied level.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 3 top founder-led companies.

Upgrade Your Decision Making: Choose your Canadian Natural Resources Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Meet Narratives, which let you attach a clear story about Canadian Natural Resources to the numbers by tying your assumptions on future revenue, earnings, margins and fair value directly to a financial forecast. You can then compare that fair value with the current share price on Simply Wall St’s Community page, where Narratives are updated automatically when new information such as news or earnings arrives. For example, one investor might build a more optimistic Canadian Natural Resources Narrative closer to a CA$75.00 fair value, while another might prefer a more cautious view nearer to CA$41.00. This gives you a simple, visual way to decide whether the stock looks above or below what you think it is worth and whether that lines up with your own reasons to buy, hold or sell.

For Canadian Natural Resources however, we will make it really easy for you with previews of two leading Canadian Natural Resources Narratives:

🐂 Canadian Natural Resources Bull Case

Fair value in this bullish narrative: CA$69.75

Implied discount to this fair value at the last close of CA$64.74: about 7.2% below the narrative fair value

Revenue growth assumption in this view: about 1.5% a year

• Focuses on cash flow strength from acquisitions, cost efficiencies and higher utilization, with analysts expecting earnings of about CA$8.6b by 2029 on a future P/E of around 20.1x.
• Sees long term support from infrastructure projects such as TMX and LNG Canada, plus a diversified asset base across crude oil, natural gas and NGLs.
• Flags key risks including oil sands exposure, tighter environmental rules, pipeline and export bottlenecks, and long run energy transition pressures.

🐻 Canadian Natural Resources Bear Case

Fair value in this bearish narrative: CA$43.00

Implied premium to this fair value at the last close of CA$64.74: about 50.5% above the narrative fair value

Revenue trend assumption in this view: revenue is expected to decline about 3.4% a year

• Highlights heavier exposure to oil sands and Canadian gas, potential pressure from tougher carbon and methane rules and questions about how much more cost cutting is achievable.
• Assumes earnings of about CA$6.4b by 2029 on a future P/E of roughly 16.5x, with more limited production growth and tighter room for large new projects if payouts stay high.
• Accepts that strong reserves, efficiency gains and a long track record of dividends and buybacks could offset some of these pressures, which is why the narrative sets out specific conditions that would challenge this cautious view.

Putting these side by side gives you a quick sense of how different assumptions about revenue, margins, carbon policy and capital allocation can lead to very different views on what Canadian Natural Resources might be worth, which you can then test against your own expectations for the business and its risks.

Do you think there’s more to the story for Canadian Natural Resources? Head over to our Community to see what others are saying!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com