Suncor’s Valuation Trend: A Time Series Analysis

From 4Q13–4Q15, Suncor Energy’s (SU) earnings have been squeezed due to falling crude oil prices. This is despite the fact that the refining and chemical earnings have improved significantly. This has led to a steep rise in its price-to-earnings (or PE) multiple. The PE ratio measures the company’s price per share as a multiple of its earnings per share.

Suncor Energy (SU) has traded at an average adjusted PE (price-to-adjusted-earnings ratio) of 13.6x from 4Q13 to 4Q14 and 38.6x from 1Q15 to 4Q15. Its PE ratio rose sharply to 50.3x in 4Q15 due to a steeper fall in earnings compared to a fall in stock price.

In 4Q15, Suncor reported an operating loss. At the current stock price, the ratio stands at 47.3x, higher than its historical average.

From 4Q13–4Q15, SU’s EV-to-adjusted EBITDA and price-to-cashflows ratios stood at an average of 5.3x and 6.7x, respectively. In 3Q15 and 4Q15, EV-to-adjusted EBITDA and price-to-cashflows, saw highs of 6.4x and 7.5x, respectively. This was due to lower EBITDA and cash flows translating into higher valuations. Currently, SU trades at 5.4x EV-to-adjusted EBITDA and 7.1x price-to-cashflows. Both multiples are currently above their historical average.

Suncor’s peers show a mixed trend in terms of price-to-cashflow ratios. SU’s peer Chevron (CVX) is currently trading at 8.1x price-to-cashflows, higher than its historical average. On the other hand, SU’s other peers BP Plc (BP) and Royal Dutch Shell (RDS.A) are currently trading at price-to-cashflow ratios of 4.6x and 5x, respectively, lower than their historical averages.

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