Suncor Energy (SU) trades at a forward PE of 12.2x, just below its peer average of 12.3x. ExxonMobil (XOM), Chevron (CVX), and PetroChina (PTR) trade above the average forward PE at 16.4x, 15.4x, and 12.9x, respectively. On the other hand, peers such as Royal Dutch Shell (RDS.A), BP (BP), Total (TOT), and Petrobras (PBR) trade under the peer average at 11.0x, 11.2x, 9.0x, and 11.4x, respectively. However, Suncor trades at the forward EV-to-EBITDA of 5.7x, above the peer average of 4.9x.
What Suncor’s valuation reveals
A couple of quarters back, Suncor traded at a discount to both peer averages driven by production cuts announced by the Government of Alberta. However, now valuations have risen with forward PE just marginally below the peer average and forward EV-to-EBITDA above the peer average.
In the first quarter, Suncor’s adjusted earnings rose by 23% YoY to 1.2 billion Canadian dollars. Plus, the company’s operating cash flows rose by 114% YoY to 1.5 billion Canadian dollars. Notably, the company’s adjusted earnings rose across its business segments. Suncor’s total debt-to-total capital ratio at 30% stood below the global industry average, a favorable position. Plus, the company provided 20% YoY higher shareholder returns in the first quarter.
Further, in Q1 2019, Suncor’s upstream production rose by 11% YoY to 0.76 MMboed (million barrels of oil equivalent per day) despite production cuts. Increased volumes at Fort Hills and Hebron drove Suncor’s production growth. ExxonMobil (XOM), Chevron (CVX), and BP’s (BP) volumes stood at 3.98 MMboed, 3.04 MMboed, and 2.66 MMboed, respectively, in the quarter. Suncor is estimated to see around a 10% rise in its hydrocarbon volumes in 2019.
No surprise, with sound financials, rising shareholder returns, and the expanding upstream portfolio, Suncor’s valuation is on the rise.