Yahoo Finance Suncor Energy's Shares Up 15% Year to Date: Time to Buy or Hold?
Suncor Energy Inc. SU demonstrated resilience in a volatile oil and energy market, with its share price increasing 15% year to date (YTD). This gain outperformed the broader oil and energy sector, which has risen 0.5% in the same time. Moreover, SU outpaced its peers in the Canadian Integrated Oil and Gas, including Cenovus Energy Inc. CVE and Veren Inc. VRN.
YTD Price Comparison
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Founded in 1917, Alberta-based Suncor Energy is Canada's premier integrated energy company. SU makes money by extracting bitumen from oil sands, processing this into synthetic crude oil, refining into petroleum products and selling to its customers. The company also owns gas stations and convenience stores, explores new oil and gas reserves and trades energy commodities.
What’s driving SU's rise? Let's take a closer look at the key factors behind its strong year-to-date performance and assess whether this momentum is likely to persist or not.
Why You Might Consider Buying Suncor Energy Stock
Why You Might Consider Buying Suncor Energy Stock
Strong YTD Performance Reflects Market Confidence: Suncor's 15% YTD share gain is a signal of investors’ confidence, driven by solid financial and operational results. Its strong cash flow generation, record Oil Sands production and high refinery utilization in the first half of 2024 have contributed to this performance. Investors might see this momentum as a sign of continued growth.
Commitment to Shareholder Returns: With a dividend of 54.5 Canadian cents per share in second-quarter 2024, Suncor offers an attractive yield, making it appealing to income-focused investors. SU has been aggressive in returning capital to its shareholders. The company repurchased C$825 million worth of shares and paid out C$698 million in dividends in second-quarter 2024. With plans to allocate up to 100% of excess funds to buybacks when debt targets are met, investors could benefit from increasing shareholder returns in the coming quarters.
Image Source: Suncor Energy Inc.
Strong Free Cash Flow Growth Projections: Suncor plans to increase its free cash flow by C$3.3 billion annually by 2026 through cost reductions and production growth. This projected growth offers a compelling reason to invest now, as the company’s cost optimization efforts and production enhancements are likely to improve cash generation.
Diversified Revenue Streams: Suncor is not solely reliant on oil production. Its integrated business model spans oil sands production, refining and marketing, as well as a growing network of Petro-Canada retail outlets. This diversified revenue base helps stabilize earnings and mitigates the risks associated with fluctuating oil prices. Investors looking for a well-rounded energy play may find this diversification attractive. The Zacks Consensus Estimate for SU’s 2024 earnings per share has increased 1.4% in the past 60 days.
Growth in Renewable Energy Investments: While Suncor remains a major player in oil sands production, it is also investing in lower-emission projects and renewable fuels. These efforts align with global trends toward energy transition, offering investors exposure to both traditional energy and the emerging clean energy space. This dual focus may appeal to long-term investors looking for growth opportunities beyond oil.
Cautionary Factors of Suncor Energy Stock
Limited Growth in Non-Oil Segments: Despite Suncor’s efforts to diversify into renewable energy and other lower-carbon initiatives, the company still generates the majority of its revenues from traditional oil operations. SU’s renewable energy investments remain relatively small compared with its oil sands production, which might limit long-term growth potential for investors seeking exposure to green energy.
High Debt Levels: Suncor reported a net debt of C$9.1 billion at the end of second-quarter 2024. While this was down from the prior quarter’s reported figure, the company still faces financial leverage risks. Any deterioration in market conditions or oil prices can complicate debt repayment and constrain SU’s ability to return cash to its shareholders.
Image Source: Suncor Energy Inc.
Valuation Concerns Post 15% Rally: SU currently has a P/E ratio of 10.64, which is above the sub-industry average of 9.22 for Canadian Integrated Oil and Gas companies. Despite the recent year-to-date rally, this may indicate that much of the positive news has already been factored into the stock price. Investors might consider waiting for a pullback or more financial clarity before entering, as the stock could be nearing overvaluation based on current earnings and growth projections.
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Carbon Emissions and ESG Concerns: Although Suncor is taking steps to reduce its carbon footprint and investing in renewable energy projects, the company’s core business remains focused on oil sands, which are subject to increasing environmental scrutiny. Investors who prioritize environmental, social and governance (“ESG”) factors may hesitate to invest until Suncor demonstrates more significant progress toward sustainability.
Heavy Maintenance Cycles Impacting Near-Term Output: While Suncor has successfully completed major turnarounds, its production in the second half of 2024 is expected to be lower due to increased overburden removal at Fort Hills. This operational slowdown should temporarily impact earnings, which might lead investors to hold until production levels stabilize.
Verdict for SU Stock
SU has shown strong resilience in the volatile oil market, with a recent year-to-date share price increase, outperforming its sector and peers. Key drivers include robust financial results, a focus on shareholder returns and a diversified revenue model. Growth potential lies in cash flow improvements and renewable energy investments.
However, challenges remain, such as reliance on traditional oil, high debt levels, a potentially stretched valuation and ongoing ESG concerns that can affect investors’ confidence. Additionally, with the company currently trading 25% up from its 52-week low, investors should wait for a more opportune entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Founded in 1917, Alberta-based Suncor Energy is Canada's premier integrated energy company. SU makes money by extracting bitumen from oil sands, processing this into synthetic crude oil, refining into petroleum products and selling to its customers. The company also owns gas stations and convenience stores, explores new oil and gas reserves and trades energy commodities.
What’s driving SU's rise? Let's take a closer look at the key factors behind its strong year-to-date performance and assess whether this momentum is likely to persist or not.
Founded in 1917, Alberta-based Suncor Energy is Canada's premier integrated energy company. SU makes money by extracting bitumen from oil sands, processing this into synthetic crude oil, refining into petroleum products and selling to its customers. The company also owns gas stations and convenience stores, explores new oil and gas reserves and trades energy commodities.
What’s driving SU's rise? Let's take a closer look at the key factors behind its strong year-to-date performance and assess whether this momentum is likely to persist or not.
Founded in 1917, Alberta-based Suncor Energy is Canada's premier integrated energy company. SU makes money by extracting bitumen from oil sands, processing this into synthetic crude oil, refining into petroleum products and selling to its customers. The company also owns gas stations and convenience stores, explores new oil and gas reserves and trades energy commodities.
What’s driving SU's rise? Let's take a closer look at the key factors behind its strong year-to-date performance and assess whether this momentum is likely to persist or not
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Suncor Energy Inc. (SU) : Free Stock Analysis Report
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Veren Inc. (VRN) : Free Stock Analysis Report
