A Look at Birchcliff Energy (TSX:BIR) Valuation After Analyst Upgrades Highlight Growth and Gas Price Tailwinds

Birchcliff Energy (TSX:BIR) is back on investors radar after a recent upgrade from a major bank, which highlighted its long delayed production growth plan and improving exposure to higher natural gas prices.

See our latest analysis for Birchcliff Energy.

The upgrade arrives after a strong run, with Birchcliff’s 90 day share price return of 20.84 percent and one year total shareholder return of 59.9 percent signaling that momentum is clearly building rather than fading.

If this kind of rerating in an energy name has you thinking bigger picture, it could be worth seeing what else is gaining traction via fast growing stocks with high insider ownership.

With the shares already up strongly and still trading at a discount to analyst targets and some measures of intrinsic value, the key question now is whether Birchcliff remains undervalued or if the market is already pricing in its next leg of growth.

Price-to-Earnings of 27x: Is it justified?

On a headline basis, Birchcliff’s current share price of CA$7.19 implies a price to earnings multiple of 27 times that looks rich compared with the broader Canadian oil and gas sector.

The price to earnings ratio compares the company’s market value to its current earnings and is a common way to benchmark how much investors are willing to pay for each dollar of profit in commodity-exposed names like Birchcliff.

In Birchcliff’s case, the 27 times multiple is above the Canadian oil and gas industry average of 14.8 times and very slightly above the company’s estimated fair price to earnings ratio of 26.7 times. This suggests the market is already pricing in a lot of good news, and only a modest step up in sentiment would be needed to move closer to that fair ratio level.

However, when stacked against its direct peer set, Birchcliff screens as better value, with its 27 times price to earnings ratio sitting below the peer average of 28.7 times. This implies the stock is not an obvious outlier in a group where investors appear willing to stretch for companies with strong growth and quality earnings characteristics.

Explore the SWS fair ratio for Birchcliff Energy

Result: Price-to-Earnings of 27x (ABOUT RIGHT)

However, investors should still watch for weaker natural gas prices or delays in Birchcliff’s production growth plans, as these could quickly undermine the optimistic rerating case.

Find out about the key risks to this Birchcliff Energy narrative.

Another View: DCF Points to Deeper Value

While the 27 times earnings multiple suggests Birchcliff is fairly priced, our DCF model paints a different picture, with fair value closer to CA$16.10 and the shares trading at a 55.3 percent discount. If that gap slowly closes, how much rerating is still left on the table?

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 Birchcliff Energy 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 908 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Birchcliff Energy Narrative

If you see Birchcliff’s story differently or want to test your own assumptions against the numbers, you can build a custom view in minutes, Do it your way.

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding Birchcliff Energy.

Looking for more investment ideas?

Before the market moves on without you, put your Birchcliff thesis in context by hunting for other high conviction ideas with the Simply Wall St Screener.

• Capture upside from mispriced opportunities by targeting these 908 undervalued stocks based on cash flows that the market has not fully appreciated yet.
• Position ahead of the next tech wave by focusing on these 25 AI penny stocks shaping automation, data intelligence, and productivity gains across industries.
• Strengthen your income stream by zeroing in on these 13 dividend stocks with yields > 3% that can potentially support long term total returns.

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