SU Investment Analysis Report & Stock Research, Suncor Energy, Inc.

Ockham's Rating/Recommendation Summary

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SU Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at SU through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 2.66x and 1.34x respectively.

Utilizing this range we can see that SU’s current Price to Sales per share ratio of 2.66x is significantly above its historical average. This places SU at the upper end of its historical range relative to sales per share and makes it difficult to suggest an attractive price outlook. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 32% merely to return SU to its historical average.

SU Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of SU, Ockham views their current Cash Earnings as significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for SU, the current level of Cash Earnings compared to its historical levels helps identify where SU is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 18.03 and a historical low Cash Earnings per share ratio of 8.03, an investor can relate where value becomes optimal.

So what does this tell us about SU in particular? Basically, we would value the current level of Cash Earnings per share (which is at 18.51) as significantly overvalued. Just by looking at the last closing price of SU, which was $29.80, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded SU with a higher stock price. So basically, we don't view this level of Cash Earnings or stock price as compatible with a long term value at this point. Just remember, that does not mean that SU may not have other merits with which to find a good investment opportunity, it just means that we would prefer to see either an increase in Cash Earnings or a decrease in stock price before we would become bullish on this metric.

SU Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for SU to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for SU is $0.38 producing a current dividend yield of 1.28%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from SU against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from SU over previous years was 2.09% while the lowest dividend yield was 0.26%. SU has shown confidence by hiking up the dividend yield to 8.94% above the historical median.