Suncor (TSX: SU)(NYSE: SU) is an integrated energy giant that specializes in the production of synthetic crude from oil sands. This company and its peers have benefited from a very friendly environment for the energy sector for most of 2021 and in the first half of 2022. It released its earnings this week. Today, I want to discuss why I’m sticking with Suncor for the months ahead. Let’s jump in.
Suncor and the energy sector have soared over the past year
Shares of Suncor have climbed 34% in 2022 as of close on May 10. The stock is up 61% from the previous year. The S&P/TSX Capped Energy Index fell 0.37% yesterday. It was able to marginally outperform the broader market that suffered another triple-digit loss.
Oil and gas prices have built huge momentum in the first half of 2022. Rising inflation already had a major impact on this jump. However, the Russia-Ukraine war and the subsequent sanctions placed on the Russian state threw the sector into turmoil. This has threatened global oil and gas supplies, leading to dramatic price fluctuations. A recent push from the European Union to potentially ban Russian oil has given prices a second wind.
Investors should feel good about Suncor’s short- and medium-term future in this environment. The price of Western Canadian Select (WCS), for example, is still up more than $30/barrel in the year-over-year period, even after a recent dip from its 52-week high.
How did the company perform in the first quarter of 2022?
Suncor unveiled its first-quarter 2022 earnings on May 9. The company reported adjusted funds from operations (AFFO) of $4.09 billion, or $2.86 per common share. This represented the highest quarterly FFO the company had delivered in its history. It nearly doubled from AFFO of $2.11 billion, or $1.39 per common share, in the first quarter of 2021.
This company also posted adjusted operating earnings of $2.75 billion, or $1.92 per common share — up from $746 million, or $0.49 per common share, in the previous year. Meanwhile, oil sands also delivered its highest-ever AFFO of $3.41 billion. Predictably, Suncor benefited from soaring commodity prices compared to the first quarter of 2021.
Total oil sands production rose to 685,700 barrels per day (bbls/d) in the first quarter of 2022. That was down marginally from Q1 2021. Suncor took a production hit due to “weather-related mining challenges.”
Should investors bet on Suncor today?
Suncor stock currently possesses a favourable P/E ratio of 16. It is trading in attractive value territory compared to its top competitors in this sector. In Q1 2022, Suncor’s board of directors approved a quarterly dividend of $0.47 per share. That was up 12% from its previous quarterly dividend. It now represents a solid 4.2% yield. I’m still eager to hold this top energy stock after its strong earnings release. The oil and gas market still have legs in what has been a big 2022.
