After a taking a fresh look at no-moat Canadian Natural Resources' (CNQ) third-quarter results, we are increasing our fair value estimate to $43 per share from $41. We are increasing our near-term cash flow outlook, driven by our increased forecast for near-term commodity prices coupled with our lower forecast for the company’s operating costs.
Despite the bump in our fair value estimate, the stock is still trading in 3-star territory with modest upside to our valuation. We think that the market is appropriately valuing the company’s ability to generate cash flow amid low Canadian commodity prices, but we caution investors that we don’t expect the stock price to fully appreciate toward our fair value estimate until there is more clarity surrounding pipeline expansions and expanded market access. The stock is yielding 4%, which represents the head of the class among oil sands peers.
Canadian Natural Resources reported third-quarter adjusted operating cash flow of $2.9 billion, a quarterly record and above our expectations. Cash flow increased 9% sequentially after increasing 30% from the first quarter. The increased cash flow was a result of higher price realizations for the company’s mining and upgrading production; lower oil sands operating costs due to synergies from the integration of the Devon Canada assets and lower energy costs; and higher-than-expected production.
Canadian Natural reported third-quarter production of 1.176 million barrels of oil equivalent per day, up 15% from the second quarter. The increased production was at the top end of the company’s guidance as a result of production optimization from the company’s Athabasca Oil Sands Project and bitumen projects in response to planned turnaround activities at the Horizon project.
With growth opportunities at a standstill, Canadian Natural continues to return capital to its shareholders. During the quarter, the company repurchased 5.1 million shares for $169 million and has repurchased $801 million worth of shares during the first nine months of the year. In addition, Canadian Natural has already repurchased 1.4 million common shares for $46 million during the first six days of November.