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Does Suncor Look Attractive with the Highest Expected Growth?

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Suncor’s growth estimate

Wall Street analysts estimate Suncor Energy (SU) to post the highest growth in its earnings in 2019. Royal Dutch Shell (RDS.A) and Total (TOT) are expected to post 8% and 7% growth in their earnings, respectively, in 2019.

Suncor is expected to post a 26% rise in its EPS in 2019. In 2018, Suncor’s adjusted EPS stood at 2.7 Canadian dollars. In comparison, Suncor’s EPS are expected to stand at 3.3 Canadian dollars in 2019 mainly because of higher hydrocarbon volumes and a lower cost structure. Further, Suncor’s EPS could rise 13% YoY (year-over-year) to 0.8 Canadian dollars in the second quarter.

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Suncor has an expanding upstream portfolio. The company is expected to see a ~10% rise in its hydrocarbon volumes in 2019. In the first quarter, Suncor’s hydrocarbon output rose 11% YoY to 0.76 million barrels of oil equivalent per day. The rise in the company’s output came despite the production curtailments imposed by the Government of Alberta.

Suncor’s ramping up of volumes at Fort Hills and Hebron drove its production growth. Syncrude’s high asset reliability also raised the company’s production. Suncor’s cash operating costs for the Oil Sands, Fort Hills, and Syncrude stood at $29.9 per barrel, $29.6 per barrel, and $37.1 per barrel, respectively, in the first quarter. The company also achieved first oil from its Oda project offshore Norway.

Valuation and dividend yield

Suncor is trading at a forward PE of 12.2x, just above the peer average of 12.1x. Further, Suncor’s dividend yield currently stands at 4.2%, below the peer average of 5.1%. In the first quarter, Suncor paid dividends of 662 million Canadian dollars and repurchased ~514 million Canadian dollars’ worth of shares.

Overall, Suncor has the highest earnings growth but with slightly higher valuations and a lower dividend yield compared to its peers.

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