Why Is Suncor Energy (SU) Up 18.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Suncor Energy (SU). Shares have added about 18.1% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Suncor Reports Narrower-Than-Expected Q1 Loss, Cuts Dividend

Suncor Energy reported loss in first-quarter 2020 results. The company’s operating loss per share of 15 cents was narrower than the Zacks Consensus Estimate of a loss of 19 cents, attributable to higher contribution from Fort Hills operation.

However, the year-ago bottom line was a profit of 58 cents per share. This downside in the year-over-year performance is due to lower commodity prices and elevated costs and expenses.

Quarterly operating revenues of $5,783 million fell short of the Zacks Consensus Estimate of $8,492 million. Moreover, the top line decreased 18.18% from $7,068 million in the year-ago quarter.

Upstream

Total upstream production in the reported quarter was 739,800 barrels of oil equivalent per day (Boe/d), down 3.2% from the prior-year level of 764,300 Boe/d. This fall in output was due to a drop in the Oil Sands production. Moreover, this upstream unit recorded operating loss of C$5 million against earnings of C$492 million in the prior-year quarter, thanks to lower price realizations and mandatory production curtailments.

Notably, Fort Hills production came in at 80,700 barrels per day (BPD) in the quarter, higher than 78,400 BPD registered in the year-ago period.

Output from Syncrude operations scaled down to 171,800 Bbl/d from 182,200 Bbl/d a year earlier due to unplanned maintenance.

Oil Sands operations volume was 377,600 Bbl/d compared with 396,600 Bbl/d in the year-earlier quarter. Operating costs per barrel dipped to C$29.45 in the quarter under review from C$29.95 in the corresponding period of 2019. However, upgrader utilization declined to 93% from 95% in the comparable quarter of last year.

Suncor Energy’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 109,700 Boe/d compared with 107,100 Boe/d in the prior-year quarter. Results were boosted by higher output levels from Hebron and Oda, which came online at the start of 2019. The same was but partially offset by lower output at Terra Nova and natural declines in the United Kingdom.

Downstream

Operating earnings from the downstream unit plunged to C$165 million from the year-ago figure of C$1,009 million due to FIFO losses associated with the significant decrease in commodity prices. Suncor Energy recorded soft refined product sales in the quarter under consideration, which fell to 531,500 Bbl/d from the prior-year level of 542,800 Bbl/d due to lower refinery utilization levels.

Crude throughput came in at 439,500 Bbl/d in the first quarter compared with 444,900 Bbl/d in the year-ago period. Also, refinery utilization was 95%.

Expenses

Total expenses in the reported quarter escalated to C$12.1 billion from C$7.39 million in the year-earlier period. This steep rise in total expenses is mainly induced by depreciation, impairment and business development costs.

Financials

Importantly, cash flow from operating activities summed C$1.38 billion in the first quarter, down 10.6% from the prior-year figure of C$1.55 billion. The company incurred capital expenditure worth C$1.282 billion in the quarter under discussion.

As of Mar 31, 2019, Suncor Energy had cash and cash equivalents of C$2.226 billion and total long-term debt of C$13.76 billion. Its total debt to total capital was of 26.6%.

Suncor Energy repurchased C$307 million of outstanding shares in the first quarter. However, given the current economic scenario, the company halted further share buybacks.

Dividend

Compelled by the historic oil market crash and the coronavirus-induced bleak demand for the fuel, the company slashed its quarterly dividend and suspended its share repurchase program to conserve cash. The firm reduced its quarterly dividend by 55% to 21 Canadian cents per share, payable Jun 25, 2020 to its shareholders of record as of Jun 4.

Guidance

Suncor Energy slashed its 2020 refiner throughput guidance to the band of 390,000–420,000 000 barrels per day (BPD) from the past outlook of 440,000-460,000 BPD. Refined product sale is now estimated within 500,000-530,000 BPD, lower than the previous outlook of 530,000-560,000 BPD.

The unexpected descent in oil prices and a slump in global demand due to the novel coronavirus outbreak are taking a toll on the oil and energy players. The companies have been forced to delay expansion plans and cut capital expenditures to sustain liquidity. So in March, Suncor Energy trimmed its 2020 capital spending view by nearly 26% to the C$3.9-C$4.5 billion range after reckoning the ongoing decline in commodity prices.

In an attempt to maintain a strong balance sheet position under this crippling market condition, the Alberta-based integrated player further lowered its total capex for the ongoing year to the bracket of C$3.6-C$4 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted 29.81% due to these changes.

VGM Scores

Currently, Suncor Energy has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Suncor Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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