Vitality shares have all the time had a little bit of a wild streak. Costs rise and fall with each geopolitical occasion, Group of Petroleum Exporting Nations (OPEC+) choice, or shift in client demand. However amidst that volatility, good buyers typically discover actual gems, corporations with sturdy fundamentals buying and selling at discount costs. Proper now, Baytex Vitality (TSX:BTE) matches that description. It’s down 38% year-to-date at writing, however with a stable long-term outlook, this can be the proper time to purchase and maintain for the a long time forward.
About Baytex
Baytex is a Canadian oil and fuel firm primarily based in Calgary. It produces crude oil and pure fuel throughout key areas together with the Western Canadian Sedimentary Basin and Eagle Ford in Texas. This twin publicity provides it a pleasant mixture of typical and shale oil manufacturing. It’s not one of many largest names on the TSX, however it has spent the previous couple of years chopping prices, boosting manufacturing, and returning capital to shareholders.
Baytex reported its first quarter 2025 outcomes on April 25, and the numbers had been stable. Income got here in at $791.2 million, up from $775 million a 12 months earlier. Internet revenue was $70 million or $0.09 per share. Whereas that’s down from the $113.7 million reported in Q1 2024, the dip was largely attributable to overseas change and hedging losses, not operational points. What actually stood out was the vitality inventory’s free money movement, which got here in at $53 million. That’s actual cash which can be utilized to pay down debt, purchase again shares, or reward shareholders with dividends.
Staying sturdy
Manufacturing in the course of the quarter averaged 144,194 barrels of oil equal per day, a 2% enhance 12 months over 12 months. About 84% of that was oil and pure fuel liquids, which fetch greater costs than dry fuel. Baytex’s break-even worth is beneath US$50 per barrel, giving it a large margin of security with oil at present buying and selling nearer to US$80. That makes its manufacturing worthwhile even in a downturn, which is one thing long-term buyers ought to love.
Baytex has additionally been aggressively lowering debt, which is vital in a cyclical business. As of March 31, its web debt was roughly $1.3 billion. That’s down sharply from over $2 billion just some years in the past. The vitality inventory needs to cut back that even additional and has dedicated to returning 50% of its extra free money movement to shareholders by way of buybacks and dividends. Which means buyers can depend on each stability and rising revenue so long as oil costs stay supportive.
Money when you wait
In Q1, Baytex repurchased 3.7 million shares for $13 million and paid a dividend of $0.0225 per share. That’s not an enormous yield, however it’s an indication of a shareholder-friendly technique. And with free money movement projected to climb later this 12 months, there’s room for will increase forward. Actually, right here’s what a $7,000 funding would seem like in the present day.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | INVESTMENT TOTAL |
|---|---|---|---|---|---|---|
| BTE.TO | $2.97 | 2,356 | $0.09 | $212.04 | Quarterly | $6,999.32 |
What makes Baytex notably fascinating is its long-term potential. Vitality demand isn’t going away. Even because the world transitions towards renewables, oil will nonetheless be wanted for petrochemicals, aviation, heavy transport, and heating. Baytex doesn’t should develop explosively to be a winner, it simply has to maintain working effectively, lowering debt, and returning money to buyers. If it does that, in the present day’s share worth might seem like a severe discount in hindsight.
Backside line
There are all the time dangers with vitality shares. Oil costs can fall quick, regulatory adjustments can affect operations, and Baytex has some U.S. publicity that provides foreign money danger. However the flip aspect is that it is a well-run, well-positioned firm that’s buying and selling at a valuation that makes little sense given the financials. A price-to-earnings ratio underneath 6 and price-to-cash movement ratio of about 2.8 are each decrease than the business common.
In case you’re searching for a long-term vitality inventory to tuck away, Baytex Vitality appears like a wise guess. It’s producing sturdy money movement, paying a dividend, and shopping for again shares. And with its inventory down 38%, you’re getting it at a steep low cost.
