Suncor Energy (NYSE:SU), the Canadian oil sands play, has struggled over the past year as the market seems to be overlooking the company's growth potential. However, the valuation for the stock now may give investors an extra push to looking at the stock. On a trailing valuation basis and analyst target, the stock is undervalued. Analysts have a particularly impressive target on the stock, suggesting upside of 37% from here. The stock is fairly valued on a forward comparison basis but that is more of a function of the whole group struggling versus SU's fair valuation.
There also have been some recent positive comments on the stock. Yesterday, the stock was upgraded to Outperform from Market Perform at BMO Capital. Last week, there was on article on Seeking Alpha noting that the stock still appears undervalued. The main idea that was highlighted in the article was the company's large reserves that gives the company great growth potential. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Suncor Energy's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Suncor Energy's current P/B ratio is 1.3 and it has averaged 1.8 over the past 5 years with a high of 4 and low of 1.1. Suncor Energy's current P/S ratio is 1.2 and it has averaged 1.5 over the past 5 years with a high of 2.4 and low of 0.6.
Price Target: The consensus price target for the analysts who follow Suncor Energy is $43. That is upside of 37% from today's stock price of $31.29 and suggests that the stock is undervalued at these levels. This also suggests that the stock has significant upside and is an attractive opportunity at these levels.
Forward Valuation: Suncor Energy is currently trading at about $31 a share with analysts expecting EPS of $3.81 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 8.2. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Imperial Oil (NYSEMKT:IMO) is currently trading at about $45 a share with analysts expecting EPS of $3.97 next year, an earnings increase of 5% y/y, for a forward P/E ratio of 11.3. Canadian Natural Resources (NYSE:CNQ) is currently trading at about $32 a share with analysts expecting EPS of $3.69 next year, an earnings increase of 28% y/y, for a forward P/E ratio of 8.6. Apache (NYSE:APA) is currently trading at about $91 a share with analysts expecting EPS of $14.08 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 6.5. The mean forward P/E of Suncor Energy's competitors is 8.8 which suggests that Suncor Energy is fairly valued relative to its publicly traded competitors.
Earnings Estimates: Suncor Energy has beat EPS estimates 3 times in the past 4 quarters. The company's EPS figures have come in between -1 cents and 32 cents from consensus estimates or about -1.6% to 53.3% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: Suncor Energy is down 31.1% over the past year, underperforming the S&P 500, which is up 4.4%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $33.28 and below its 200 day moving average, which sits at $31.85.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.