Typically the very best long-term alternatives come wrapped in short-term disappointment. That’s the case with Baytex Power (TSX:BTE), a Canadian oil and gasoline firm that’s seen its share worth fall about 47% from its 52-week excessive. However for buyers who can deal with a little bit of volatility and wish to construct wealth over time, this might be one inventory to purchase and maintain, probably eternally.
The numbers
Let’s be clear: Baytex isn’t a family title. It’s smaller, extra uncovered to commodity swings, and has a little bit of a rocky historical past. However that’s a part of why it trades so cheaply. At latest costs, Baytex is valued at simply seven instances ahead earnings and 0.5 instances ebook worth. That’s not simply low, it’s discount basement low-cost, even within the vitality sector. So, what offers?
Nicely, a couple of issues. For one, oil costs have softened in 2024. These are nonetheless wholesome general, however not hovering like they had been within the early days of the Russia-Ukraine conflict. That’s created downward strain on many Canadian vitality shares. Second, Baytex made a serious acquisition in 2023 when it purchased U.S.-based Ranger Oil. The deal gave it an enormous footprint within the Eagle Ford shale however got here with debt and execution threat. Some buyers are nonetheless watching intently to see how that performs out.
However if you happen to look underneath the hood, Baytex is doing simply high quality. In its first-quarter 2025 earnings, the dividend inventory reported $464 million in adjusted funds move, up from $424 million the earlier yr. Web revenue got here in at $70 million, and Baytex generated $153 million in free money move. That’s the form of cash that can be utilized to pay down debt, reward shareholders, or reinvest in progress.
Extra to return
In actual fact, Baytex is already doing all three. It decreased its web debt to $2.2 billion, continues to purchase again shares, and pays a small however rising dividend that at the moment yields about 3.3%. The dividend inventory has additionally reiterated its plan to return much more money move to shareholders. That’s not simply lip service, it’s baked into their capital-allocation technique.
Operationally, Baytex has improved its value construction and is pumping extra effectively than in earlier years. The Ranger acquisition is beginning to repay, with manufacturing exceeding steering and U.S. property contributing almost half of whole output. The dividend inventory now has a various asset base in Western Canada and the U.S., giving it extra flexibility when vitality costs swing.
After all, no inventory is bulletproof, particularly one tied so intently to grease. Baytex will at all times be considerably unstable, and earnings can fluctuate from quarter to quarter. However for long-term buyers, what issues extra is whether or not an organization is worthwhile, disciplined, and dedicated to rising worth over time. Baytex ticks all these packing containers. And whereas it could by no means be the flashiest inventory on the TSX, it doesn’t must be.
Backside line
The true attraction right here is within the numbers, the low valuation, the sturdy stability sheet, a transparent plan to reward shareholders, and a monitor file, at the least in the previous couple of years, of enhancing operations. As oil costs stabilize and buyers rotate again into undervalued vitality performs, Baytex may quietly re-rate greater. However even when it doesn’t, it affords the form of free money move and long-term worth creation that makes it value holding indefinitely.
While you purchase a dividend inventory to carry eternally, you’re in search of greater than only a commerce. You need one thing with endurance. Baytex Power, regardless of the market’s present disinterest, could also be precisely that. Down round 47% from latest highs and nonetheless performing nicely underneath the hood, it’s a uncommon case of an inexpensive inventory that isn’t damaged. For these with a long-term horizon, this might be one of many higher bets in Canadian vitality right this moment.