I am very bullish on the CAD, however
for a Canada-based investor, a rise in the CAD is not good for COS, as earnings are hurt. for a US-based investor, the hit to earnings from a rising CAD is more or less ameliorated by the rise in the CAD/USD cross. it is pretty close to a wash for a US investor, from what i can tell.
long term, however, if CAD ever gets to a sustainable parity with USD, my conjecture is that this will increase the attractiveness of Canada-based investments in general, so we may see higher PEs and lower dividend yields. just a guess, of course.
looking at the fcf for COS at various crude prices and production volumes really drives home the tremendous upside (and downside) sensitivity. COS has control over its production volumes, and i think that is a very bullish factor for the next year as COS ramps average production from 110 to 129 mmb. that will make a BIG difference in earnings.
but equally significant, and unfortunately outside of COS' control as long as they don't hedge, is the price of crude. it makes COS very hard to value because you are trying to discount a long-term stream of earnings that will fluctuate based on an unpredictable price trend. this, to me, is one reason why private equity could invade the energy space--they have no qualms about hedging, and with the proper hedges in place they can do LBOs. |
