Here's Why Suncor Should Move Higher

Crude oil crash has pushed the stocks of oil miners downwards. With oil still trading near multi-year lows, I think oil prices have bottomed and this may be the right time to bottom fish oil stocks. Due to the volatility in oil prices, it would be unwise to expose your portfolio too much to energy stocks. Hence, it is important to pick the right stocks in order to benefit from the recovery in oil prices.

One such company is Suncor Energy. The company has been cutting-costs efficiently and its progress is evident in its latest quarterly report. Suncor Energy shared Q3 EPS of $0.28, $0.10 better than the consensus estimate of $0.18.

Free Cash Flow

Suncor Energy delivered robust operational and financial results successively in the Q3FY15.
The company underwent various steps to increase its profitability. It was the third succeeding quarter in which the company reached 90% throughput on its upgrades and carried on to progressively reduce costs.

Suncor also delivered record low-cost in-situ production. The company not only has various significant achievements in this quarter, but also it has already completed its entire objective for 2015. Over the prior year, oil prices are down roughly 60%. As a result, many oil companies are simply trying to stay afloat. However, Suncor comes in the list of top class oil companies that are thriving in the current situation as they are generating free cash flow while managing to improve their production.

Recently, oil prices have dropped to less than $42 per barrel. In spite of weak oil market, Suncor’s refineries profited from frail crude prices and produced C$5.5 billion in cash flow. The company has still accomplished to generate C$875 million in free cash flow, excluding C$2 billion and C$2.7 billion for maintenance and to fund future growth respectively.

While most of the oil companies are trying to save themselves from drowning in the sea of weak oil price market, Suncor is producing so much free cash flow that it actually increased its dividend.

The two reasons that accounts for the company’s strong results are very clear. First, Suncor’s integrated business model that actually grant a boost to cash flow, including its marketing and refining segment thrusting in 42% of its cash flow last quarter, which is 20% more as compared to last year’s same quarter.

Secondly, the company has reduced its costs to its bottom level this year, comprising its oil sands operating costs falling to levels not perceived from a long time. These all factors together put Suncor in a leading category.


Given Suncor’s robust performance amid weak crude oil environment, I am convinced that that company is well positioned to benefit from an increase in prices. Although oil prices will not reach last-year’s high anytime soon, Suncor shares will move higher even if oil prices touch $60 per barrel. Hence, I think investors should add Suncor to their portfolio to benefit from an expected recovery from crude oil.
Published on Dec 1, 2015
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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