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 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.