To say that energy stocks experienced a challenging year in 2020 is an understatement. The pandemic-induced lows for Canadian oil producers were devastating. The energy sector in Canada recovered sharply due to the improving demand and higher commodity prices.
Suncor Energy (TSX:SU)(NYSE:SU) is one of the largest energy companies in the country with an integrated business model. Suncor specializes in producing synthetic crude oil from oil sands. The company engages in producing, refining, and retail operations.
After a year full of troubles, Suncor started 2021 on a strong note and the stock enjoyed an excellent run for the first half of the year. Suncor Energy stock climbed by 46% between January 4 and June 15, 2021 before it began declining again.
Suncor stock started declining on June 15, leading up to its second-quarter earnings report for fiscal 2021 that was due on July 28, 2021.
Today I will discuss some of the key takeaways from the energy company’s Q2 earnings report to help you determine whether it is a Canadian growth stock at its current valuation or if it’s a company to avoid right now.
Key takeaways from the Q2 earnings report
- Suncor Energy reported funds from operations (FFO) of $2.362 billion in the second quarter. The second-quarter FFO was a significant improvement from the same quarter last year as the figure came in at $488 million.
- Suncor Energy’s cash flow from operations in Q2 2020 was $768 million. The previous quarter saw the figure surge to a healthier $2.08 billion. The company managed to deliver a solid profit of $868 million due to the increased oil production.
- Suncor Energy’s oil production was an impressive 699,700 barrels to show an improvement in its upstream production compared to 655,500 barrels in the same quarter last year.
- The company ended the second quarter for fiscal 2021 with improved downstream operations as its refinery utilization rate increased to 94%.
Suncor Energy stock and its peers with oil sands operations in Canada are set on the goal to achieve zero greenhouse gas emissions from oil sands operations by 2050, falling in line with the global trend of greener industrial practices.
Suncor’s management expects to spend around 10% of its annual capital budget on investments intended to improve on its lower-carbon energy offering to work toward its long-term goal for zero greenhouse gas emissions by 2050.
Suncor stock is trading for $24.47 per share at writing. Its valuation is up by 14.40% on a year-to-date basis, but it is trading for a discount of 21.75% from its high in June 2021. At its current valuation, the energy company pays its shareholders at a juicy 3.43% dividend yield.
Suncor Energy’s management was forced to make a 55% cut in its dividend payouts during 2020. This year has seen the company’s earnings improve significantly. While the company’s management has not announced any plans to increase its payouts, the dividend yield at its current valuation is still a decent figure.
Suncor currently boasts solid financials. Between its improving financial performance and increasing demand for commodities and rising crude oil prices, the energy stock looks like an excellent asset to add to your portfolio.
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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.