Suncor (SU) is a vertically integrated energy company situated in Alberta, Canada. The company operates many oil sands, exploration, production, and refining projects. In addition, Suncor has a presence in the downstream part of the sector through its ownership of Petro Canada. I am bullish on the stock.
Norwegian Asset Sales
Suncor has retained the services of Scotiabank (BNS) to help divest 100% of its assets in its Suncor Energy Norge AS unit.
The package includes a 30% stake in the Oda field, which produces an average of 15,000 barrels per day. Suncor’s planned divestitures also include a 17.5% stake in the Fenja exploration project, which is expected to deliver oil in 2023.
Although neither Suncor nor Scotiabank were willing to comment on the news, the most likely reason for the sale is a strategic shift towards a focus on core business. Capital intensive companies often cut off the loose ends to reignite growth by reinvesting in high sales/CapEx projects.
Production Update
In Q4 2021, production came in below estimates due to unforeseen events in which the cold disrupted operations in Firebag, with two crucial furnaces tripping. In addition, a truck collision disrupted Syncrude’s proceedings as production was halted due to a fatality.
As a result of the unfortunate events, Suncor’s production was reduced by an average of 35,000 barrels per day. 2022’s production plans are on track as of January 17, and Suncor is expected to amass an approximate total of $9.55 billion in revenue in its March report, presenting ~2% quarterly growth.
Valuation
Peer analysis shows that Suncor stock is significantly undervalued. The stock is trading at a discount to its five-year valuation averages. Based on its price/sales and price/cash-flow ratios, Suncor is undervalued by 31.2% and 45.3%, respectively. We could also pose a fair argument that the stock’s PEG of 0.66 suggests that the firm’s growth rate is far exceeding its price-to-earnings growth.
All fundamental metrics considered, it’s difficult to argue that Suncor isn’t a good investment, as it presents investors with an abundance of value for a low amount of risk.
Wall Street’s Take
Turning to Wall Street, Suncor has a Strong Buy consensus rating, based on one Buy, five Holds, and two Sells assigned in the past three months. The average Suncor Energy price target of $35.49 implies 24.4% upside potential.
Final Word
Suncor’s proclivity to emphasize high sales/CapEx has led to it being one of the more favorable stocks to buy during the commodity price boom. I see the firm sustaining its success into 2022 with solid production playing into investor optimism amid a time when the stock is undervalued.
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