Where Will Suncor Stock Be in 3 Years?

Suncor continues to drive operational efficiencies and value. Expect this momentum to drive Suncor stock higher.

| More on:
Super sized rock trucks take a load of platinum rich rock into the crusher.

Source: Getty Images

Suncor Energy Inc. (TSX:SU), Canada’s leading integrated oil and gas giant, has an interesting history. Years of sub-optimal operational and safety performance had finally caught up with Suncor a few years ago. As a result, a new CEO came in and began to revamp everything. The result is record performance for Suncor and Suncor stock, which is fast approaching all-time highs.

But what’s in store for Suncor Energy stock in the next three years?

Suncor’s business

I’d like to tackle this question by first going over Suncor Energy’s business. In a nutshell, the company’s business is comprised of a downstream segment (refining) as well as an upstream segment (exploration and production). This diversification provides Suncor with the benefit of more predictable and steady cash flows, with each segment driven by slightly different variables.

Also, Suncor’s assets are a system of integrated pieces, where one part can compensate for another and where there’s flexibility to re-direct molecules in order to achieve the largest value-added at any given time.

Record results

The result of these efforts has been operational and safety performance that has been breaking records. For example, in Suncor’s latest quarter, Q3 2024, the company achieved record refining throughput and utilization. Also, production was the highest in the company’s history and profitability was strong despite lower oil and gas prices.

These strong results enabled Suncor to progress on its goal of cleaning up its balance sheet, reaching its net debt target earlier than expected. The significance of this cannot be understated. In the beginning of 2024, Suncor was returning 50% of its excess cash flow to shareholders. Now that this debt target has been hit, this will change. The company will now pay out 100% of its excess cash flow to shareholders. This means more dividends and share buybacks and higher returns.

Suncor – looking ahead

From an operational standpoint, Suncor has been blowing past expectations. Looking ahead, the company expects this momentum to continue. As the company looks to the future, the focus will continue to be on finding opportunities for improvement. This means driving increased value by taking advantage of the company’s integration, finding and fixing bottlenecks, increasing capacity, and driving down capital intensity.

This will be reflected in Suncor’s cash flows. In fact, the company has a target to generate $3.3 billion in incremental cash flow by 2026. As for earnings per share (EPS), the consensus analyst expectation is for EPS of $6.74 in 2027. This is 32% higher than 2023, and it represents a compound annual growth rate (CAGR) of 7.2%.

Suncor stock – valuation

As Suncor has been posting these operational improvements, its stock price has not surprisingly been on a tear. In the last three years, it has rallied 45% and in the last year, it has rallied 29%. In terms of valuation, Suncor Energy stock is trading at a mere ten times this year’s expected earnings and eight times 2027’s expected earnings.

This means that investors are discounting Suncor stock and in my view, not giving the company credit for its very lucrative business. It may be that investors are still wary of oil and gas stocks, over-stating the risk involved, or just simply deploying their money elsewhere, like to artificial intelligence stocks.

The bottom line

Energy stocks like Suncor have really improved their businesses dramatically in recent years. In Suncor’s case, the company is seeing falling costs in conjunction with rising production and throughput. This is the ultimate example of value creation. In three years, I expect Suncor stock to reflect this value creation and to command a higher multiple (valuation).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Energy Stocks

oil pump jack under night sky
Energy Stocks

Better Energy Stock: Brookfield Renewable or Northland Power?

Renewable stocks have a strong outlook, but which of these two are the best to buy?

Read more »

oil and natural gas
Energy Stocks

Outlook for Canadian Natural Resources Stock in 2025

We can expect more of the same for Canadian Natural Resources stock in 2025: strong production, returns, and shareholder value…

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

What to Know About Canadian Energy Stocks in 2025

Energy stocks like Canadian Natural Resources are well-positioned to benefit from strong energy markets in 2025.

Read more »

data analyze research
Energy Stocks

Enbridge Stock Has a Nice Yield, But This Dividend Stock Looks Safer

Don't be fooled by a pretty dividend yield. Dig deeper to find the real golden goose.

Read more »

Oil industry worker works in oilfield
Energy Stocks

Better Energy Stock: Suncor vs Canadian Natural Resources?

Investors are wondering if Suncor (TSX:SU) or Canadian Natural Resources (TSX:CNQ) are undervalued and good to buy for a TFSA…

Read more »

dividends can compound over time
Energy Stocks

3 No-Brainer Energy Stocks to Buy Right Now for Less Than $500

Energy stocks offer returns, dividends, and more. But which offers the best long-term buy?

Read more »

3 colorful arrows racing straight up on a black background.
Energy Stocks

A Canadian Energy Stock Poised for Big Growth in 2025

The energy sector has faced a lot of changes this new year, so is this energy stock going to sink…

Read more »

Natural gas
Energy Stocks

Is Natural Gas the Smart Energy Investment Right Now?

For investors interested in energy, it's essential to look at the businesses and their fundamentals, not just the asset they…

Read more »