20 Mar

Why Suncor Stock Is Trading at High Valuations

WRITTEN BY Maitali Ramkumar

Suncor’s valuations

Suncor Energy (SU) is trading at a forward PE multiple of 17.3x, higher than the peer average of 13.1x. ExxonMobil (XOM), Chevron (CVX), and PetroChina (PTR) are also trading above the peer average at 17.5x, 16.8x, and 15.5x, respectively. In contrast, Royal Dutch Shell (RDS.A), BP (BP), Total (TOT), and Petrobras (PBR) are trading below the peer average at 11.5x, 12.6x, 10.6x, and 12.1x, respectively.

Suncor is trading at a forward enterprise value-to-EBITDA multiple of 6.8x, again above the peer average of 5.0x.

Why Suncor Stock Is Trading at High Valuations

Why the premium over its peers?

Suncor’s trading above the peer averages is likely the result of its robust financials and rising upstream volumes.

In 2018, Suncor’s adjusted earnings rose 35% to 4.3 billion Canadian dollars. The company’s cash flow from operations also rose 18% to 10.6 billion Canadian dollars. Its total debt-to-total capital ratio of 28% also stood below the global industry average, indicating a favorable position. The company also provided high shareholder returns in 2018, as we discussed in the previous article.

Suncor has a growing upstream portfolio. The company is expected to see a ~10% rise in its hydrocarbon volumes in 2019. Suncor expects first oil from its major upstream project, Oda, in the second quarter of 2019, earlier than scheduled.

In the fourth quarter of 2018, oil sand volumes touched new highs of 741 Mbpd (thousand barrels per day) due to higher utilization at Fort Hills and record output at Syncrude. Hebron’s fourth production well also completed in the fourth quarter of 2018, further ramping up volumes.

It’s no surprise that with Suncor’s sound financials, rising shareholder returns, and expanding upstream portfolio, its stock is trading at higher valuations than those of its peers.

In the next article, we’ll discuss Suncor stock’s performance.

Latest articles

On June 25, Credit Suisse initiated its coverage on Shake Shack with an “outperform” rating and a target price of $77—an upside potential of 15.4% from its closing price of $66.72 on June 24.

On June 25, the soft economic data isn't an isolated case. We have been getting a flurry of dismal data points. The US economy added only 75,000 non-farm jobs in May.

French retail giant Carrefour has agreed to sell an 80% stake in its China operations for ~$705 million to Suning.com, an Alibaba (BABA) backed company. While China represents a massive opportunity with its almost 1.4 billion population, it has not been an easy market for foreign companies, at least when it comes to retail and e-commerce.

On June 25, US Secretary of Agriculture Sonny Perdue told CNN in an interview that the US-China trade war has impacted US farmers. He said that farmers “are one of the casualties” of the trade war.

25 Jun

Hang Seng and Nikkei 225 Lose amid Trade Worries

WRITTEN BY Mayur Sontakke, CFA, FRM

After rising marginally yesterday, Hong Kong’s Hang Seng Index fell today. The index lost 1.15% to end at 28,185.98. Only seven stocks in the index rose, while 39 declined. Four remained unchanged. Tencent Holdings (TCEHY) was one of the worst performers with a 1.8% fall.

Square (SQ) was absent from the list of the inaugural members of the Libra Association, the entity that will ensure that Facebook’s (FB) Libra cryptocurrency works as intended. Nearly 30 companies have joined the Libra Association.