Suncor Energy Inc. (USA) (SU) — Canada’s largest oil and gas producer reported a third-quarter loss on Wednesday due to an unrealized after-tax foreign exchange loss. But SU stock rallied nearly 3% on the day as management noted an increase in free cash flow and lower operating costs. Specifically, operating costs decreased to $27 per barrel in Q3 for the company’s oil sands operations, the lowest level since 2007.
Suncor has strong reserves, so it is not dependent on the passage of the Keystone XL pipeline, although approval would be a positive for revenue and earnings.
In August, S&P Capital IQ Equity Research increased its full-year 2015 earnings estimate by 13% to 97 cents per share. Its analysts rate SU stock a “buy” with a 12-month price target of $33. This is a mere 7.7 times enterprise value to projected 2016 EBITDA, which is below Suncor’s 10-year average multiple and a slight discount to its peers.
After falling from a high in April at over $33, SU stock established a double-bottom under $25. It confirmed the bottom when it broke from its 50-day moving average at about $27 and is now attacking the 200-day moving average at $28.77.
The minimum target for SU stock is $33, but the benefit to owners of Canadian stocks could be multiplied when crude oil moves higher since the Canadian economy is commodity-based.
Buy SU stock under $29 with a price target of $33 for a potential 14% gain, plus dividends. The company pays a 22-cent quarterly dividend for a current forward annual yield of 3.1%.
