Suncor Energy (NYSE:SU) is best known for its commercial development of oil sands in Canada. Across operations, it intends to achieve production of 1 million barrels by 2020. However Suncor has many other businesses in its portfolio, such as the exploration and development of on shore and off shore wells for natural gas and oil throughout Canada, retail sales of oil products and now a renewable business, 255MW of wind generation and Canada's largest ethanol plant, with production of over 400 million liters per year.
Reviewing Suncor's 2011 Annual Report, there are many positives I would like to highlight. Cash flow from operations has increased to nearly 10 billion, up from less than 3 billion in 2009, and net debt has been cut in half during the same time. Oil sands production increased by 7.5% from 2010 to 2011, and the average cost of production was just over $40 a barrel.
What is surprising is that even with earnings going from $2.45 a share in 2010 to $2.74 in 2011, and a 10% dividend increase, the share price actually decreased from $38 in 2010 to just under $29 a share at the end of 2011. Today Suncor rides just above $30 a share.
Suncor is currently in a $1.5 billion dollar share buyback program. I have mixed thoughts on share buybacks, but I think this is a positive for Suncor. Its stock is currently down 28% from one year ago, compared with Exxon Mobil (NYSE:XOM), which has held steady from one year ago, and British Petroleum (NYSE:BP), which is down just over 8% from one year ago. At $30 a share, 50 million shares will be unavailable to the public, which will make a modest change from 1.56 billion shares outstanding to 1.51 billion shares outstanding.
EPS projections from 2012 and 2013 look solid with continued growth, with EPS of $3.29 and $3.61 projected. With the projected share buyback, EPS numbers should look more like $3.40 a share for 2012 and $3.73 for 2013. I also believe that Suncor may make the dividend a bit more attractive, with less heads to pay it out to every quarter.
Conclusion: The oil stock sector is not the hot item right now. Furthermore, Suncor is colder than others. As long as crude stays north of $60 a barrel, there are large profits to be made from the oil sands. I don't see oil really dipping below $80 a barrel, but stranger things have happened during a presidential election (remember 2008). With a current PE of around 10 and a forward PE of less than 9, Suncor is a strong value in today's market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.