Suncor (TSX:SU) Stock Drops on Disappointing Results

Suncor (TSX:SU)(NYSE:SU) delivered better-than-expected earnings. Is the company a buy now that oil prices are beginning to recover?

| More on:
Group of industrial workers in a refinery - oil processing equipment and machinery

Image source: Getty Images

It has been a disappointing year for one of Canada’s largest integrated energy company, Suncor (TSX:SU)(NYSE:SU). Year to date, the company is down by 45.36%. After years of outperformance, it is now one of the worst-performing stocks in the industry.  

Earlier in the week, I’d indicated that there was little reason to buy Suncor stock before earnings. How did the company perform? Let’s take a look. 

The earnings report

After the bell on Wednesday, the company reported financial results for the second quarter ending June 30, 2020:

Metric Reported Expected
Earnings per share -$0.98 -$0.65
Revenue $4.25 billion $3.51 billion

All things considered,  it was a disappointing quarter from Suncor. The company posted an operating loss of $0.98 per share, which missed by $0.33, while revenue of $4.25 billion beat by $740 million. Although the numbers look respectable against analysts’ estimates, it is quite a different story year over year. 

The net loss per share is a far cry from earnings of $1.74 per share posted in the second quarter of 2019. Likewise, revenue fell by 45.26% from $7.756 billion last year. 

The big drops over the second quarter were to be expected. Low oil prices took its toll on the industry, and the pandemic exasperated demand. As a result, production fell to 655,500 barrels of oil equivalent per day, an 18.5% drop YOY.

“The company’s results in the second quarter of 2020 were significantly impacted by the COVID-19 pandemic, which has lowered demand for both crude oil and refined products and, combined with the OPEC+ increase in supply, resulted in a significant decline in commodity prices, compared to the prior year quarter.” — Company press release

In other words, the oil and gas industry faced two macroeconomic headwinds simultaneously. This led to Suncor reducing forward cash commitments by $4.5 billion in 2020. 

The year ahead

Now that the price of oil has rebounded off lows, is there reason for investors to be optimistic? First and foremost, Suncor’s fortunes remain tied to the price of oil. 

As Suncor previously announced when it cut the dividend in May, the company’s funds from operations (FFO) breakeven price is US$35/per barrel. The good news is that the price has been consolidating above this level for the past month. 

So long as the economic rebound suffers no notable setbacks, the price of oil may have seen its bottom. Unfortunately, we live in times of considerable uncertainty, and this is no guarantee. 

As per the company, “there are a number of external factors beyond (its) control … including the status of the COVID-19 pandemic and potential future waves.”

On the bright side, the company exited the second quarter in a strong financial position with $9 billion in liquidity. This should be sufficient to maintain the company’s current dividend and revised capital program of $3.8 billion. 

Likewise, Suncor reiterated previously reduced guidance for full-year production of 760,000 boe/d. This is good news and can be a sign of optimism from management

Is Suncor stock a buy today?

Despite what was a decent quarter, it did little to change my neutral outlook on Suncor. The reality is that uncertainty remains, and there are already signs of a potential second wave and additional shutdowns. This is sure to pressure the price of oil over the near future. 

With that in mind, there should be plenty of opportunity for investors to either start or top up existing positions over the next few months. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien owns shares of SUNCOR ENERGY INC.

More on Dividend Stocks

financial freedom sign
Dividend Stocks

Million-Dollar TFSA: 1 Way to Achieve to 7-Figure Wealth

Achieving seven-figure TFSA wealth is doable with two large-cap, high-yield dividend stocks.

Read more »

analyze data
Dividend Stocks

How Much Will Manulife Financial Pay in Dividends This Year?

Manulife stock's dividend should be safe and the stock appears to be fairly valued.

Read more »

food restaurants
Dividend Stocks

Better Stock to Buy Now: Tim Hortons or Starbucks?

Starbucks and Restaurant Brands International are two blue-chip dividend stocks that trade at a discount to consensus price targets.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,500.50 in Passive Income

If you have $10,000 to invest, then you likely want a core asset you can set and forget. Which is…

Read more »

Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

TFSA Set and Forget: 2 Dividend-Growth Superstars for the Long Run

I'd look to buy and forget CN Rail (TSX:CNR) and another Canadian dividend-growth sensation for decades at a time.

Read more »