Early last month, I’d written that Suncor Energy (TSX:SU)(NYSE:SU) stock was depressed. I’d noted, “A normalized environment should drive a rebound in the stock. Let’s say the stock only recovers partially to $35 per share, it would still be an incredible near-term upside of 49% from $23.47 per share at writing. Furthermore, it also provides a nice yield of almost 3.6% that adds to total returns.”
How I wish I listened to my own advice and picked up some shares. Yesterday alone, the energy stock rallied more than 13%. At $32 per share, it is 36% higher than when I’d discussed it less than two months ago. That would be an awesome return even on an annualized scale! So, why did Suncor stock soar?
Why did Suncor stock soar 13% yesterday?
After the stock market closed on Wednesday, Suncor stock released its third-quarter (Q3) results, and the stock reacted by flying. Investors have multiple reasons to be bullish.
First, the large-cap integrated energy company witnessed a strong rebound in its operating cash flow that signified a continued recovery since Q1. Specifically, Suncor Energy’s funds from operations came in at $2.6 billion for the quarter, more than a double from Q3 2020! Additionally, the business also swung from an operating loss in 2020 to operating earnings of $2.5 billion year to date with a quarter-over-quarter jump of 44%.
Second, the board of directors reinstated the Suncor common stock dividend back to the 2019 levels of $0.42 per share per quarter. Recall that the company cut its dividend by half during the pandemic in May 2020. The restored dividend is a big confidence booster for investors. The new annualized payout of $1.68 per share — a yield of 5.25% at $32 per share — will surely attract dividend investors.
Third, Suncor’s balance sheet has improved substantially. Since the start of the year, the company has reduced its net debt by $3.1 billion. Simultaneously, management still maintained a nice dividend given the challenging operating environment and managed to buy back meaningful shares at cheap valuations. Year to date, Suncor repurchased $1.7 billion worth of common stock — equivalent to 4.1% of Suncor outstanding common shares — for $26.39 per share.
The Foolish investor takeaway
Suncor stock is cyclical, as illustrated by the large ups and downs in its long-term stock price chart. I recommend investors to actively invest in the stock, aiming to buy low and sell high. However, it’s easier said than done. Different investors will have a different opinion on what’s considered low or high.
SU data by YCharts
The energy stock appreciated 13% yesterday and still has room to run potentially to the $40-per-share level over the next 12 months. However, allow me to give a friendly reminder that the stock has already climbed approximately 36% from the September level. The easy money has been made — mostly driven by a low valuation before and the high oil prices we’re experiencing now.
Suncor’s assumptions of oil prices for this year are 17-20% lower than where they are now. Whenever oil prices retreat from here to more normalized levels, energy stocks, including SU stock, will likely suffer.
