Is it Too Late to Buy Suncor Stock?

Suncor Energy stock has rallied big in the last year, but expect it to move higher as efficiencies keep rolling in.

Karen Thomas, MSc, CFA ❯

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published May 22, 2024 9:15 pm EDT

Suncor Energy Inc. (TSX:SU) has turned over a new leaf. One that is more than ever focused on fundamentals, safety, reliability, and profitability. Shouldn’t it always have been focused on this? Well, yes. But the fact is that for a while, Suncor lost its bearings, and things turned negative. But today, this renewed focus is producing results. And Suncor Energy’s stock price is reflecting this.

Up 40% in the last year, is it too late to buy Suncor Energy stock?

Suncor reports a record first quarter

To answer this question, let’s go over Suncor’s latest earnings results. In the first quarter, the company performed impressively on many fronts.

First, we have its safety record – a key variable that provides the base of any operation. I’m happy to say that Suncor has officially turned things around on this front. In the quarter, safety incidents that would result in lost time decreased 50%. Also, reportable safety incidents decreased 20%. And finally, process safety events declined 50%. This represented a first-quartile performance record on safety.

With this, let’s move on to the second point – operational performance and reliability. In this category, Suncor set new records in the quarter as Q1 was the highest in the company’s history.

Best ever utilization rate recorded of 98%.
Throughput increased 88,000 barrels/day, up 24% versus last year.
Upstream production increased 13%, and was the highest in the company’s history
Upgrader utilization of 102% attained due to Suncor’s integration

Suncor’s earnings beat expectations

Suncor reported earnings per share (EPS) of $1.41 versus $1.36 in the same quarter last year. This was above the consensus expectation that was calling for EPS of $1.28. Suncor has been beating expectations for quite some time now, and it’s clear that the company is still proving itself after many years of disappointing investors.

With this in mind, it’s therefore not surprising that the stock’s valuation is not as high as I believe it should be. Shockingly to me, Suncor’s stock price trades at under 10 times earnings, which is very low relative to historical multiples.

Looking ahead – more cost savings and efficiencies to come

Suncor is scheduled to update investors on May 21^st with its plans and targets. Until then, there are a few things that I think we should focus on to inform our opinion on Suncor.

The first is Suncor’s integration, which is a competitive advantage for Suncor. The company’s physical integration consists of three mines and in situ operations, which are connected to two large upgraders. This provides Suncor with flexibility and optionality that is proving to be invaluable. Basically, Suncor can move its resources accordingly to maximize value. The company has been capitalizing on this better than ever.

The second area of cost savings and efficiency extraction is in Suncor’s mining fleet. The company recently embarked on a mission to convert to autonomous haul trucks and will have 91 of these trucks by year-end. These trucks provide greater efficiencies and cost savings. In fact, each of these new trucks provide $1 million per year in sustainable savings plus additional productivity gains. In total, Suncor’s revamped fleet of trucks is expected to lower the company’s break-even by $1US per barrel.