Earnings Preview: Suncor Energy Inc. (SU) Q4 2011
By:NewsyStocks   Monday, January 30, 2022 4:30 PM

Suncor Energy Inc. (SU) is scheduled to release its fourth quarter earnings on January 31 at 6:30 AM. Another very strong quarter for Suncor is expected with Q4 operating EPS of $1.13 and CFPS of $1.84 – very similar to the record numbers delivered in Q3/11.Production of approximately 558,436 Boe/d is anticipated, which is up 2% from Q3/11 on North Sea production reliability improvements but down 8% Y/Y due to the loss of Libyan volume.

Q4 oil sands cash costs are expected to come in at $37.40/Bbl ($39/Bbl including FB start-up costs), on the higher end of its normalized levels reflecting continued ramp up of Firebag 3.

Overall, on an industry-wide basis, Q4 results is expected to be quite strong with most producers likely to show improved results both sequentially and Y/Y. Liquids producers should see a meaningful increase in price realizations sequentially as crude returned to prices supported by fundamentals late in the year, while gas producers should continue to see their profits squeezed in the face of a depressed commodity market. SU reported an EPS of $0.60 in Q4 and $0.65 in Q3 of 2010 on revenues of $10.84 and $9.5 billion respectively.

Our Take

Credit Suisse has maintained an Outperform rating with a price target of C$50. Suncor's shares are currently trading at 5.8x and 4.8x Credit Suisse's forecast of 2012E and 2013E EBIDAX respectively compared with 6.5x and  5.6x for its North American Integrated Oil peers and 8.9x and 7.8x for Cenovus, Suncor's primary integrated oil sands peer. The C$50.00 target equates to 6.5x 2013E EBIDAX forecast of C$12,488 million, largely in-line with C$48.70 net asset value.  
If the company can continue its recent  operational momentum in the oil sands (record production was achieved in  December), in addition to no scheduled maintenance until mid-2013, we expect to see SU re-rate back to its historical valuation as it returns to growth. Suncor's re-rating will further be boosted by its falling variable costs. Additionally, a major share of this FCF is expected to make its way back to investors either in the form of increased dividends, or share buybacks.