Improved sales and higher crude oil prices led to a 38.9% revenue boost for this company in its most recent quarter.
Average daily production should rise 5% due to operations upgrades and exploration.
The stock trades at just 2.1 times the company’s 2020 cash flow forecast.
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SUNCOR ENERGY INC. (Toronto symbol SU; www.suncor.com) is Canada’s largest integrated oil firm, with major projects in the Alberta oil sands. Investors also tap its four refineries (three in Canada and one in Colorado), along with its 1,500 Petro-Canada gas stations.
Suncor has also invested heavily in its operations in the past few years. That included a deal to buy Canadian Oil Sands Ltd., a major investor in the Syncrude oil sands project of northern Alberta, for $7.1 billion. Suncor now owns 58.74% of Syncrude.
However, due to lower crude oil prices, Suncor’s revenue fell 9.2%, from $29.5 billion in 2015 to $26.8 billion in 2016. Revenue then rebounded 19.9% to $32.1 billion in 2017 and rose a further 21.5% to $39.0 billion in 2019.
Overall cash flow fell 12.0%, from $6.8 billion in 2015 to $6.0 billion in 2016. Due to the extra shares outstanding after the Canadian Oil Sands purchase, cash flow per share declined at a faster rate of 21.0%, from $4.71 to $3.72. Cash flow then jumped to $5.50 a share (or a total of $9.1 billion) in 2017, and rose again to $6.27 a share (or $10.2 billion) in 2018 and $6.94 a share (or $10.8 billion) in 2019.
Energy Stocks: Strong balance sheet holds up despite writedowns
The company’s 2019 cash flow excludes two writedowns: a $2.8 billion reduction in the carrying value of its 54.11%-owned Fort Hills oils sands project in northern Alberta (Teck Resources owns 21.31% while Total SA holds the remaining 24.58%) due to weak oil prices; and a $393 million charge against its 26%-owned West White Rose offshore drilling project near Newfoundland (which should begin operating in 2022). That was because of rising construction costs.
Even after those charges, the balance sheet is strong. It ended 2019 with cash of $1.96 billion, while its $12.9 billion in long-term debt is a manageable 47% of its market cap.
In 2020, Suncor expects to spend between $5.4 billion and $6.0 billion on exploration and upgrades to its operations. That investment will let the company increase this year’s average daily production by about 5%, to between 800,000 and 840,000 barrels a day.
Average daily production fell 6.4% in the fourth quarter of 2019, to 778,200 barrels from 831,000 barrels a year earlier. However, due to higher oil prices, revenues rose 38.9%, to $4.3 billion from $3.1 billion. Cash flow also rose 27.2%, to $2.6 billion from $2.0 billion. On a per-share basis, earnings increased 31.7% due to fewer shares outstanding.
Suncor’s cash flow should total $8.08 a share in 2020. The shares trade a very low 2.1 times that forecast.
Starting with the March 2020 payment, Suncor increases your quarterly dividend by 10.7%, to $0.465 a share from $0.42. The new annual rate of $1.86 yields a very high 11.1%. Suncor has lifted your payment each of the last 18 years.
Warren Buffet’s Berkshire Hathaway owns shares in Suncor. That said, oil prices are plunging and the SU stock price has followed, from $34 to $10 this year. Oil prices will stabilize and eventually start to rise again. I’d wait for a bottom to form before buying SU.
This is way off base Mr. Bates. The oil prices have dropped off the table, not “higher” as you say. And your headline 4.9% is 11.1% by the end of the article. For an article dated March 19 it is not up to date. There is no consideration for any of the past month’s issues.
Thanks for your comment on this free Daily. Please note that we will continue to update our advice on Suncor for subscribers — in The Successful Investor newsletter and Hotlines — to reflect evolving energy prices and markets.
Hi Jim; I see that the title has changes but the content not yet. The odd high return is due to the crash in stock price. Perhaps update this for the last month’s activity.
Thanks for your comment on this free Daily. Please note that we will continue to update our advice on Suncor for subscribers — in The Successful Investor newsletter and Hotlines — to reflect evolving energy prices and markets.
The analysis is based on historical data. Can you please do an analysis of Suncor based on the present price of less than $10.00 US per barrel of Western Canada Select and Suncor cost per barrel of production of this oil. The analysis should also include the firms cash burn rate based on present oil prices.
Thanks for your comment. We will continue to update our advice for subscribers —i n The Successful Investor newsletter and Hotlines — to reflect evolving energy prices and markets.
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Warren Buffet’s Berkshire Hathaway owns shares in Suncor. That said, oil prices are plunging and the SU stock price has followed, from $34 to $10 this year. Oil prices will stabilize and eventually start to rise again. I’d wait for a bottom to form before buying SU.
Thanks for your opinion on this Successful Investor recommendation: Suncor.
This is way off base Mr. Bates. The oil prices have dropped off the table, not “higher” as you say. And your headline 4.9% is 11.1% by the end of the article. For an article dated March 19 it is not up to date. There is no consideration for any of the past month’s issues.
Thanks for your comment on this free Daily. Please note that we will continue to update our advice on Suncor for subscribers — in The Successful Investor newsletter and Hotlines — to reflect evolving energy prices and markets.
Hi Jim; I see that the title has changes but the content not yet. The odd high return is due to the crash in stock price. Perhaps update this for the last month’s activity.
Thanks for your comment on this free Daily. Please note that we will continue to update our advice on Suncor for subscribers — in The Successful Investor newsletter and Hotlines — to reflect evolving energy prices and markets.
The analysis is based on historical data. Can you please do an analysis of Suncor based on the present price of less than $10.00 US per barrel of Western Canada Select and Suncor cost per barrel of production of this oil. The analysis should also include the firms cash burn rate based on present oil prices.
Thanks for your comment. We will continue to update our advice for subscribers —i n The Successful Investor newsletter and Hotlines — to reflect evolving energy prices and markets.
DO YOU THINK WE WILL SEE PRICE RECOVERY ANY TIME SOON
Thanks for your question. We still see Suncor’s outlook as positive, and we still see the stock as a buy.