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Suncor Energy (SU) Up 12% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Suncor Energy (SU). Shares have added about 12% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Suncor Energy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Suncor Energy Q1 Earnings Miss, Revenues Top Estimates

Suncor Energy reported first-quarter 2021 operating earnings per share of 39 cents, missing the Zacks Consensus Estimate of 44 cents. This lower-than-expected result is due to its ramped-down production from the exploration and production segment.

Meanwhile, the year-ago bottom line was a loss of 15 cents per share. This year-over-year outperformance is led by improved refined product sales and decreased operating, selling and general costs as a result of the company’s continuous cost-minimizing efforts.

Quarterly operating revenues of $6.82 billion came ahead of the Zacks Consensus Estimate of $6.3 billion. Moreover, the top line rose 17.9% from $5.78 billion in the year-ago quarter.

Upstream

Total upstream production in the reported quarter was 785,900 barrels of oil equivalent per day (Boe/d), up 6.2% from the prior-year level of 739,800 Boe/d. This rise in output was owing to better Syncrude and Oil Sands production plus planned maintenance activities at Oil Sands operations. Evidently, this upstream unit recorded operating earnings of C$163 million against the loss of C$427 million in the prior-year quarter.

Notably, output from Syncrude operations scaled up to 193,500 Bbl/d from 174,400 Bbl/d a year earlier.

Fort Hills production came in at 51,200 barrels per day (BPD) in the quarter, lower than 80,700 BPD registered in the year-ago period.

Oil Sands operations volume was 463,800 Bbl/d compared with 387,900 Bbl/d in the year-earlier quarter. Operating costs per barrel decreased to C$23.30 in the quarter under review from C$29.45 in the corresponding period of 2020. Upgrader utilization increased to 97% from 93% in the comparable quarter of last year.

However, Suncor Energy’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 95,300 Boe/d compared with 109,700 Boe/d in the prior-year quarter. Results were impacted by the absence of Terra Nova production and natural production declines.

Downstream

Operating earnings from the downstream unit rose to C$714 million from the year-ago figure of C$101 million, attributable to improved margins and strong refined product sales. Suncor Energy recorded impressive refined product sales in the quarter under consideration, which increased to 548,100 Bbl/d from the prior-year level of 531,500 Bbl/d.

Crude throughput came in at 428,400 Bbl/d in the first quarter compared with 439,500 Bbl/d in the year-ago period. Also, refinery utilization was 92%.

Expenses

Total expenses in the reported quarter plummeted to C$7.52 billion from C$12.1 billion in the year-earlier period. This uptrend is mainly led by lower costs related to the purchases of crude oil and products as well as a fall in operating, selling and general costs.

Financials

Importantly, cash flow from operating activities summed C$2.345 billion in the first quarter, up from the prior-year figure of C$1.384 billion. The company incurred capital expenditure worth C$772 million in the quarter under discussion.

As of Mar 31, 2021, Suncor Energy had cash and cash equivalents worth C$1.76 billion and a total long-term debt of C$15.1 billion. Its total debt to total capital was 29.3%.

During the quarter under review, the company distributed $319 million as dividends.

Guidance

For the full year, this Alberta-based integrated player will continue to focus on strengthening its financial position. The company assigned about two-thirds of its free cash flow on debt repayment and one-third on share repurchases. It plans to maintain a disciplined capital approach and estimates to repay around C$1-C$1.5 billion debt in 2021, thereby indicating its capability to generate cash flow. All these measures position Suncor Energy well to benefit its upstream and downstream business.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 208.33% due to these changes.

VGM Scores

Currently, Suncor Energy has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Suncor Energy has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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