Imperial Oil (TSX:IMO): Exploring Valuation as Investor Focus Intensifies

Imperial Oil (TSX:IMO) has caught the attention of investors lately, as its share price has swung modestly over the past week. With market momentum shifting, many are watching to see where this Canadian energy giant heads next.

See our latest analysis for Imperial Oil.

Despite a modest dip in Imperial Oil’s share price this week, momentum has been building for much of 2024. The stock boasts a 38.5% year-to-date share price return and an impressive 30.9% total shareholder return over the past year. While day-to-day moves can be choppy, the energy giant’s longer-term performance shows why it remains on investors’ radar as sentiment in the sector shifts.

If Imperial Oil’s trajectory has you weighing new energy opportunities, it could be time to expand your outlook and discover fast growing stocks with high insider ownership

The recent jump in share price has some wondering if Imperial Oil’s growth potential is fully captured in the current valuation or if lingering skepticism leaves room for upside. Is there an opportunity here, or has the market already priced in what lies ahead?

Most Popular Narrative: 11.8% Overvalued

Imperial Oil's consensus fair value sits just below its latest close, with analysts seeing a limited upside from current pricing. The narrative reflects a market grappling with future earnings potential versus today’s momentum. This sets the stage for a deep dive into the underpinning catalysts and expectations.

“Major efficiency improvements at Kearl, including unit cash cost reductions (~$2/bbl YoY, productivity upgrades, and extension of turnaround intervals), position Imperial Oil for sustained margin expansion and higher ROIC as production targets increase toward 300,000 bbl/d. This is expected to improve future net margins and earnings. Ramped-up production and expansion of solvent-assisted SAGD at Cold Lake, as well as new projects with decades of inventory, are expected to drive long-term production growth and lower per-barrel emissions and costs, supporting both higher revenue and better regulatory risk management.”

Read the complete narrative.

Just how bold are the profit and growth assumptions steering this call? One controversial adjustment in future margins and a surprise shift in revenue projections could change everything. Don’t miss the numbers that make this narrative tick. Your next move may depend on them.

Result: Fair Value of $111.35 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent exposure to oil sands and unpredictable oil prices could put downward pressure on Imperial Oil’s profitability. This may test the staying power of the current narrative.

Find out about the key risks to this Imperial Oil narrative.

Another View: Looking Through a Different Lens

For a contrasting take, our SWS DCF model suggests Imperial Oil is trading well below its implied intrinsic value, at a 55.8% discount to fair value. While multiples suggest the stock is fully valued, the DCF points to sizeable upside. Which method tells the truer story?

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 Imperial Oil 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 839 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 Imperial Oil Narrative

If you feel that the current story doesn’t align with your perspective, you can review the figures and shape your own narrative in just a few minutes. Do it your way

A great starting point for your Imperial Oil research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

Looking for More Investment Ideas?

Ready to level up your investing strategy? Don’t let smart opportunities slip away. Take action now with some of the most exciting stock themes available.

• Maximize your search for hidden value by checking out these 839 undervalued stocks based on cash flows where strong cash flows could point to tomorrow’s winners.
• Capture income potential as you browse these 20 dividend stocks with yields > 3% featuring high-yield companies built for stability and reliable returns over time.
• Ride the future of healthcare as you scan these 33 healthcare AI stocks for breakthrough innovators harnessing artificial intelligence to transform patient outcomes.

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