RBC Upgrades Suncor; Downgrades Petro-Canada

RBC Capital analysts swapped ratings on two of Canada's biggest oil plays today on the heels of recent swings in respective share valuation.

Mark Polak upgraded his rating on Suncor Energy Inc. (SU) from "sector perform" to "outperform" based on the company's recent share sell-off, that has seen the stock fall 17% since hitting a peak of $112.28 on Jan. 3, 2008. His C$126 price target remains unchanged.

Suncor now trades at a 39% discount to his unrisked net asset value of C$151.15 and a 27% discount to his risked NAV of C$126.46, Mr. Polak said in a research note

Mr. Polak wrote:

We believe the recent sell-off presents a rare opportunity to buy Suncor at such a discount, as the company's shares generally command a premium valuation relative to peers due to track record and experience.

Meanwhile, Gordon Gee downgraded his rating on Petro-Canada (PCZ) shares from "outperfom" to "sector perform, and left his C$64 price target unchanged.

Petro-Canada shares are down 9% since Jan. 7, and currently trade at a 77% price-to-net asset value based on Mr. Gee's blowdown NAV and a 71% price-to-NAV on his proforma valuation.

Mr. Gee said:

Although these are among the lowest valuation multiples within our universe, we believe investors should consider reducing exposure in favour of companies with above average all-in implied returns to our 12-month target.

Mr. Gee also said that a further decline in oil prices, which have dropped from approximately 8% on the near end of the strip to 3% on the long end, since first week of the month would put pressure on his target price.

Comments

[swimjames]

The track record and experience of SU are truly exceptional! Oil sands only downfall is the hazard it presents to the environment.