SU Fundamental Research Investment Analysis, Suncor Energy Inc.

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Suncor Energy Inc. (SU)

The Razor's Edge

2-Year Price History

Recent Price
(1/5/2009)
$22.99
52-Week Price
$14.52 - $74.28
Market Capitalization
$21.5 Billion
Dividend Yield
0.70%
Most Recent Dividend
$0.18

About Suncor Energy Inc.

Suncor Energy Inc. is considered to operate in the Basic Materials sector. They specifically operate in the Independent Oil & Gas business segment contained within the Energy industry.

The Company produces a variety of refinery feedstock, diesel fuel and by-products by developing the Athabasca oil sands in northeastern Alberta.

A Word Of Caution

Suncor Energy Inc. (SU) has experienced a very significant loss in market value recently. Clearly this drop in price will have an impact on the valuation but the recent events that caused the drop may have not been fully factored into our analysis yet. When a stock loses value very quickly it could be a sign that there is a fear of bankruptcy.

Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect significant factors surrounding this company.

Therefore, (and as always), check additional sources and available information regarding SU before making an investment decision.

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

SU Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, SU the high and low end of the Price to Sales per share ratios are 2.86x and 1.72x respectively.

Notice that SU's current Price to Sales per share ratio is 0.88x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $21.10, SU is 62% below where we would expect to see it. This will beneficially factor into our final analysis of SU as it is not often that this stock sinks to these levels.

SU Cash Earnings

Looking at SU specifically in their Cash Earnings capabilities, Ockham views SU as significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from SU. For example, SU's Cash Earnings ratio per share has fluctuated between 8.09 and 13.58 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where SU is with respect to prior business periods.

So with SU's current price (latest close of $21.10) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, SU is 64% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with SU.

SU Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from SU against the historic high and low levels over an available data range. Because SU has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In SU’s case, the estimated annual dividend is $0.16 producing a current dividend yield of 0.76%. The highest dividend yield from SU in recent history was 1.30% while the lowest dividend yield was 0.22%. SU is not making us feel all that confident when their current dividend yield is below the historical median by 0.00%.

Peer Comparison

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Suncor Energy Inc. Industry Grouping

(1/5/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding SU) 4.52 2.41 » 12.58 0.99 0.66 » 10.13 25.89% 22.46%
*10 year range does not include current year values
XTO Energy, Inc. XTO $22.9 Billion $39.70 4.82 1.51 » 11.37 1.89 0.62 » 21.32 46.82% 23.88%
Suncor Energy Inc. SU $21.5 Billion $22.99 3.95 5.35 » 17.84 0.88 1.82 » 14.30 42.07% 25.58%
Marathon Oil Corp. MRO $20.7 Billion $29.34 2.65 2.50 » 8.56 0.26 0.21 » 2.63 16.89% 23.94%
Sasol LTD ADR SSL $20.0 Billion $33.67 6.88 3.13 » 15.05 0.98 0.87 » 9.93 11.49% 24.10%
Hess Corp. HES $19.1 Billion $58.56 3.43 2.22 » 9.94 0.49 0.35 » 3.62 21.54% 18.30%
Anadarko Petroleum Corp. APC $19.0 Billion $41.44 4.80 2.69 » 18.00 1.32 1.23 » 13.16 32.71% 22.08%
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Key Fundamentals

SU - Suncor Energy Inc. Fundamentals
Price (1/5/2009) $22.99
Volume (1/5/2009) 12.8 Million
10 Day Average Volume 5.9 Million
13 Week Price Range $14.52 - $29.94
52 Week Price Range $14.52 - $74.28
LTM Revenue $27.0 Billion
 
Shares Outstanding (12/2007) 934.9 Million
Market Capitalization $21.5 Billion
Shares Held By Institutions 671.2 Million
Insitutional Holders 750
% Shares Held By Institutions 71.80%
Earnings Per Share (EPS) $3.03
P/E Ratio 6.70
Book Value Per Share $14.56
 
Gross Margin 51.10%
Quarterly Dividend 0.16
Dividend Yield 0.70%
Beta 2.14
Fiscal Year Ends December