Suncor Energy Inc.
Wednesday’s close: $29.60, up 74 cents
52-week trading range: $26.96 to $34.99 a share
Annual dividend: 52 cents a share for a yield of 1.8 per cent Analysts’ targets: There were 24 buys, one hold and no sells, according to Bloomberg data. Targets ranged from $36 a share as estimated by Deutsche Bank analyst Paul Sankey to $48 a share by Barclays analyst Paul Cheng.
Shares of the Calgary-based energy company have struggled since hitting a high of $72 a share in 2008. Over the past year, the stock is off 3 per cent, including dividends.
The shares took a hit after the company posted a fourth-quarter loss in February and wrote off a $1.5-billion investment on its Voyageur oil sands upgrading project. However, the stock price has rebounded after Suncor struck a $1-billion deal last week to sell the conventional part of its natural gas business to U.K.-based Centrica PLC and state-run Qatar Energy Inc.
The sale is part of divestiture program that began after Suncor acquired Petro-Canada in 2009, and means that the company is now more of a pure-play oil company, although it still retains its shale-gas production, mainly in Alberta.
Suncor will release its first-quarter results next Monday. Analysts expect it will report adjusted earnings of 75 cents a share on revenue of $10.1-billion.
Suncor will likely announce a healthy dividend increase when it reports earnings next week, said Robert Gill, a portfolio manager with Aston Hill Financial Inc.
“We think that it will be a positive catalyst for the stock,” said Mr. Gill, whose firm has been adding more Suncor shares to its portfolios over the past week. “I am looking for something that is sizable enough that it re-ignites interest in its shares, so you might pick up a different class of shareholders [looking for yield]. The company has a very low yield [1.8 per cent] relative to some of its energy peers.”
Management likes to talk about a 20-per-cent growth rate in dividends over the past five years, he said. “While that is true, it is off a very low base...so we are looking for them to continue that growth, or improve upon it.”
Suncor has a strong balance sheet and used its free cash flow to pay down debt over the past couple of years; it will get an additional cash infusion from the recent sale of its natural gas assets, said Mr. Gill. “If you look at the rhetoric from the management team, they are talking a lot about investing in only high-return projects...They would rather grow slower, but more profitably.”
Suncor’s stock currently represents “very attractive value,” he said. It trades at only 4.3 times cash flow, a much lower valuation than its peers. “Crescent Point Energy trades at eight times cash flow, while Cenovus Energy trades at six times cash flow. I think Suncor is worth $40 a share.”
The stock seems to be slowly rebounding, but its path from here may hinge on finding a way to return money to shareholders. “If they do increase the dividend materially, which is what I am looking for, then I think you are going to see that momentum continue...The biggest risk to the stock has to do with the pipelines, and if there are further delays or lack of building of new capacity.”