Canadian oil company Suncor Energy (TSE: SU) (NYSE: SU) is under scrutiny from activist investor Elliott Management, which recently expressed its disappointment over the company’s performance.
In a letter addressed to Suncor’s board of directors, Elliott, which holds a 3.4% economic interest in Suncor, criticized the company for its persistent operational challenges and safety mishaps. It blamed a “slow-moving, overly bureaucratic corporate culture” for missed production targets, high costs, and employee deaths as well as accidents.
Elliott also highlighted the underperformance of the company’s shares over the last three years compared to closest rival Canadian Natural Resources (CNQ) and other oil sand peers. Overall, the activist investor suggested several steps, including a management review and board enhancements, to restore confidence.
Suncor is scheduled to announce its results on May 9, and Elliott Management, as well as other investors, will be closely watching the company’s performance in a quarter that witnessed soaring energy prices.
Q1 Expectations
In Q4 2021, Suncor swung to an adjusted EPS of C$0.89 from an adjusted loss per share of C$0.07 in the prior-year quarter but missed analysts’ estimate of C$0.94. Adjusted funds from operations increased to C$3.14 billion, reflecting a 157% year-over-year growth. Further, revenue jumped 69% to $11.1 billion in Q4 2021. The quarter gained from higher crude oil and refined product realizations.
However, Suncor’s upstream production was down 3.4% to 743,300 barrels of oil equivalent per day due to lower production from its exploration and production assets, including the impact of the sale of its 26.69% working interest in the Golden Eagle Area Development in 2021.
Suncor faced some challenges in January at its mining operations, which led to a slower start to the year and will be reflected in its Q1-2022 production. First-quarter production will also be impacted by major maintenance on Suncor’s hydrotreating and hydrogen assets at Syncrude, aimed at maximizing the company’s full-year production.
Analysts’ consensus estimate for Suncor’s Q1-2022 EPS stands at $1.55, compared to adjusted EPS of $0.49 in Q1-2021.
Wall Street’s Take
Recently, Morgan Stanley named Suncor as one of its “Conviction Picks,” stating that the company’s growth “in renewables cash flow is not yet priced in given the historical perception of oil sands companies as bad environmental actors.”
Suncor recently announced that it would divest its wind and solar assets and focus on hydrogen and renewable fuels.
Last month, Morgan Stanley analyst Devin McDermott raised his price target for Suncor to C$52 from C$46 and reiterated a Buy rating.
Overall, Suncor scores a Moderate Buy consensus rating based on five Buys and three Holds. The average Suncor price target of C$50.75 implies 5.3% upside potential from current levels. Canadian-listed shares of Suncor have rallied about 52% so far this year.
Conclusion
Suncor’s Q1-2022 results are expected to benefit from higher energy prices. However, investors will be keen to know management’s initiatives to address operational challenges and other concerns raised by Elliott.
Also, Suncor scores a “Perfect 10” from TipRanks’ Smart Score Rating System, suggesting that it is likely to outperform the overall market.
Discover new investment ideas with data you can trust.
Read full Disclaimer & Disclosure
