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Suncor Energy Inc SU

Morningstar’s Analysis

Valuation
Currency in USD

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Increasing Our Fair Value Estimate for Suncor; Stock Looks Undervalued

Joe Gemino, CPA Senior Equity Analyst

Analyst Note

| Joe Gemino, CPA |

We are increasing our fair value estimate for no-moat Suncor Energy to $24/CAD 31 from $22/CAD 28. Our higher fair value estimate is driven by increased near-term commodity price. The stock is trading near $17/CAD 22, and we see over 25% upside at those levels. In our view, the market is too narrowly focused on the temporary decline in demand for refined products along with the issues plaguing the other upstream companies. We expect refinery demand to pick up when crude oil demand increases, and Suncor's integrated operations will help generate positive cash flow. Suncor’s downstream business provides stable cash flows when oil prices are low or differentials widen and hedges against the company’s upstream production. The stock still offers investors a 3.5% dividend yield in addition to the upside.

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Company Profile

Business Description

Suncor Energy is one of Canada’s largest integrated energy companies, operating in western Canada, east coast Canada, the United States, and the North Sea. The upstream portfolio includes bitumen, synthetic crude, and conventional crude, which helps to offset higher-cost oil sands production. Suncor’s upstream production is supported by its refining operations, which have a capacity of 466,000 barrels a day. Production averaged 695 mb/d in 2020, and the company estimates that it holds approximately 7.4 billion barrels of proven and probable crude oil reserves.

Contact
150 - 6th Avenue S.W., P.O. Box 2844
Calgary, AB, T2P 3E3, Canada
T +1 403 296-6636
Sector Energy
Industry Oil & Gas Integrated
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 12,591

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