Morningstar | Raising Our Fair Value Estimate on Suncor Energy; Stock Looks Undervalued
We are increasing our fair value estimate on no-moat Suncor Energy to $35 (CAD 47) from our previous estimate of $34 (CAD 45) on our increased outlook for the company’s downstream operations. With the stock trading near $29 (CAD 39), we see 20% upside in the 4-star name. We think that the market is overlooking Suncor’s downstream business. The company’s refining operations provide stable cash flows when oil prices are low or differentials widen, hedging against the company’s upstream production. With the recent sell-off in equity markets, we see an attractive entry point for investors.The stock also offers investors a 3.9% forward dividend yield, and the company continues to return capital to its shareholders. With new growth projects on the back burner, Suncor announced its second plan to repurchase the company’s stock over a 12-month period. The second round of stock repurchases began in May 2018. In total, Suncor will repurchase CAD 5 billion of shares over the two-year period that began in May 2017.
We are maintaining our no-moat rating.
For a detailed look at Canadian crude and pipeline trends, please refer to our September Energy Observer, "Don't Overlook Oil Sands: Falling Costs and More Infrastructure Will Make Canadian Production Globally Competitive."
Suncor Energy is an energy company. Co.'s operations include oil sands development and upgrading, onshore and offshore oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand. Co.'s segments include: oil sands, which develop and produce synthetic crude oil and related products through the recovery and upgrading of bitumen; exploration and production, which include offshore activity, and the exploration and production of crude oil, natural gas, and natural gas liquids; and refining and marketing, which include the refining of crude oil products, and the distribution and marketing of these and other purchased products, as well as a lubricants plant.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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