Suncor Is Just Getting Started

02/15/2011 12:18 pm EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

Strong results and the stock’s gathering momentum promise even higher prices, writes Gordon Pape in the Internet Wealth Builder.

Finally, we are seeing some movement in oil-sands crude producer Suncor (NYSE: SU, Toronto: SU).

The New York-traded shares closed at $42.30 on Feb. 4, their highest level since October 2008, before pulling back a bit to trade near $42 in recent action. Still, that is a big improvement from our last update in November, when they were trading at $35.68.

The stock was given a boost by powerhouse fourth-quarter financial results. Net earnings came in at $1.35 billion, or 87 cents per share, compared to $457 million, or 29 cents per share, for the fourth quarter of 2009. (All figures in Canadian currency.) Operating earnings were $946 million (60 cents per share) compared to $342 million (22 cnets per share) in the fourth quarter of 2009. The results easily beat analysts' expectations.

The company said that the increase in operating earnings was primarily due to improved margins and increased refined-product sales in refining and marketing, higher realized oil prices, and increased oil sands production.

Although total production declined due to the sale of some non-strategic assets, production from continuing operations increased to 605,400 barrels of oil equivalent per day in the fourth quarter from 544,500 barrels in the same quarter of 2009.

Cash flow from operations was $2.14 billion ($1.37 per share) in the quarter compared to $1.13 billion (72 cents per share) in the fourth quarter of the previous year.

"Operational results were strong across the business in the fourth quarter," said CEO Rick George. "In our oil sands business, steady and reliable production from both mining and in situ assets drove record quarterly production volumes, while our international and offshore assets continued to perform well. In our downstream operations, both production volumes and margins were strong contributors in the quarter, underlining the benefits of our integrated strategy."

Now that the stock has finally started to move, I think there is a lot more upside here. The shares are still well below their all-time high of $71.11 reached in May 2008. I am raising my target to $50.

[As Tom Aspray notes, energy stocks have been among the current rally’s leaders, and the oilfield services group has done particularly well. Aspray names two more stocks that have broken through technical resistance. Mark Skousen recently recommended a pair of energy infrastructure plays boasting particularly generous yields.—Editor]  

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