Suncor Energy Inc. (TSX:SU)(NYSE:SU) is back below $40 per share, and investors who like the name are wondering if this is a good time to buy the stock.
Let’s take a look at Canada’s largest integrated energy company to see if it deserves to be in your portfolio today.
Diversified business units
Suncor is primarily known as an oil sands giant, but the company also owns four refineries and more than 1,500 Petro-Canada retail stations.
The oil sands, or upstream, operations are feeling the pinch from low oil prices, and margins are taking a hit. Suncor has worked hard to reduce operating costs through the downturn, and those efforts are mitigating the effects of the drop in oil prices.
Nonetheless, second-quarter results at the oil sands operations came in a bit disappointing, with the company booking an operating loss of $277 million in the segment.
This was mainly due to maintenance and outage issues. The company says it expects to see a better performance from the group going forward.
Despite the challenging second quarter, full-year oil sands cash operating costs are now expected to be $23-26 per barrel, which is an improvement from the previous guidance of $24-27.
Refining activities delivered net earnings of $262 million in the quarter, and the marketing group, which includes the service stations, added another $84 million.
Growth
Suncor has taken advantage of the downturn to make strategic acquisitions at reasonable prices. As the market recovers, investors should see a solid return on the investments.
The company also has a number of organic growth projects on the go, and two of them (Fort Hills and Hebron) are scheduled to begin production by the end of 2017.
Dividends
Suncor pays a quarterly dividend of $0.32 per share for an annualized yield of 3.2%. The company has a strong balance sheet, so the distribution should be safe, even if oil prices remain under pressure for some time.
Should you buy?
Suncor has held up very well through the oil rout due to the diversified nature of its business.
If you think oil prices are headed higher through the end of 2017 and into next year, it might be worthwhile to start nibbling on Suncor and sit back a collect the dividend while you wait for better days.
If you think oil is going to dip back to US$40 per barrel, or you think oil will be stuck below US$50 for years, it would be better to look for other opportunities.
