Tuesday, July 14, 2015

Suncor Energy Inc. 2

Sound bite for Twitter and StockTwits is: Stock price is Cheap. The problem is that oil prices are down. I think that this stock is relatively cheap. Of course at some point, I can see the world getting off oil and going fully renewable, but I think that this is a bit far off at the moment. See my spreadsheet at su.htm.

I do not own this stock of Suncor Energy Inc. (TSX-SU, NYSE-SU). I started following this stock as Petro-Canada (TSX-PCA). It was on Mike Higgs' list of dividend growth stocks. This was also a key stock for the Investment Reporter. My spreadsheet follows PCA into SU. PCA and SU merged in 2009. Anyone looking at this stock would have had to followed SU or PCA into the merger which was only 5 years ago.

In insider trading there was some $7.1M of insider selling and some $0.5M of insider buying for a net insider selling of $6.6M over the past year. This is some 0.01% of market cap and so is relatively small. There is insider ownership with the CEO owning shares worth around $13.6M, the CFO owning shares worth around $0.4M and a Director owning shares worth around $0.7M. Relatively speaking it is not much as all this would be way under 1% of market cap.

This company issued some 7.8M of shares for stock options last year. This is some 0.54% of outstanding shares and is relatively around the top end of what companies would issue. These shares had a book value of $292M and this number of shares would be worth around $289M by the end of 2014.

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.58, 13.89 and 17.37. The corresponding 10 year ratios are higher at 15.54, 19.60 and 24.37. By the way, the historical median P/E Ratio is 26.21 which is even higher. The current P/E Ratio is 52.31 based on a stock price of $34.00 and 2015 EPS estimate of $0.65. This testing would suggest that the stock price is relatively expensive.

Note that forward P/E for 2016 is 20.12 based on a stock price of $34.00 and 2016 EPS estimate of $1.69. On the other hand the analyst estimates for this stock where way higher than what occurred for the last 3 years.

I get a Graham Price of $20.44. The 10 year low, median and high median Price/Graham Price Ratios are 0.83, 1.07 and 1.37. The current P/GP Ratio is 1.66 based on a stock price of $34.00. This stock price testing suggests that the stock is relatively expensive. However, the Graham Price is expected to be around $32.95 in 2016 which would give a P/GP Ratio of 1.03 based on a stock price of $34.00. Since Graham Price includes EPS in its formula the same remarks on analysts' missing in their EPS estimate would apply.

The 10 year Price/Book Value per Share Ratio is 1.35. The current P/B Ratio is 1.19 based on a stock price of $34.00 and current BVPS of $28.56. The current P/B Ratio is some 12% lower than the 10 year median P/B Ratio. This stock price testing suggests that the stock price is relatively reasonable. For the stock to be cheap, the current P/B Ratio would have to be some 20% lower than the 10 year median. However, a P/B Ratio is 1.19 is a low ratio. This historical median P/B Ratio is 1.45 and the current one is some 19% lower than this.

Where this stock is showing up cheap is using the dividend yield. In this case the one that counts is the historical high which is 2.77%. The current dividend yield of 3.29% is some 19% higher than the historical high. This dividend yield is based on a stock price of $34.00 and dividends of $1.12. This stock price testing suggests that the stock price is relatively cheap. What is good about this testing is there is no use of estimates and we are using current stock price and current dividend yield.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform. Most of the recommendations are either a Buy or a Hold. The consensus recommendation would be a Buy. The 12 month price target is $43.30. This implies a total return of $30.65% with 27.35% from capital gains and 3.29% from dividends.

Benjamin Sinclair of Motley Fool talks about why Goldman Sachs says you should buy Suncor. An article in the Legacy talks about some analysts giving a Buy rating on this stock. There is an article in the Globe and Mail recently talking about Suncor seeking answers from NEB about delay in the Sarnia to Montreal pipeline.

This is the second of two parts. The first part was posted on Monday, July 13, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

Suncor Energy Inc. is an integrated energy company. Suncor's operations include oil sands development and upgrading, conventional and offshore oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand. Suncor is also developing a growing renewable energy portfolio. Their international and offshore business includes operations in the North Sea (United Kingdom, Netherlands and Norway) and the East Coast of Canada. They are also in Libya, Syria and Trinidad and Tobago. Its web site is here Suncor.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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