Although last year was challenging for the broader equity markets, energy stocks delivered superior returns amid higher energy prices. Meanwhile, oil prices have cooled down substantially from their 52-week highs. However, analysts are bullish on oil amid supply concerns and growing demand. So, given the favourable environment, which among Suncor Energy (TSX:SU) and Canadian Natural Resources (TSX:CNQ) would be a better buy for investors?
First, let’s look at their 2022 performance and growth prospects.
Last month, Suncor Energy reported a solid 2022 performance, which ended on December 31. Increased upstream production and higher realization of crude oil and refined product due to an improved business environment drove its financials. Its adjusted funds from operations increased by 76.5% to $18.1 billion, while its adjusted net income grew by 204% to $11.57 billion. However, higher operating expenses offset some growth.
The company’s upstream production increased from 731.7 thousand barrels of oil equivalent per day (mboe/d) in 2021 to 743.2 mboe/d, primarily due to higher oil sand assets production. Its refinery utilization increased from 89% to 93%, resulting in higher refined product sales.
Amid its solid financials, Suncor Energy lowered its debt levels by $3.2 billion. It repurchased around 116.9 million shares, representing 8.1% of its outstanding share as of December 31, 2021. Decreased debt levels and lower share counts also boosted the company’s earnings per share. The company raised its dividend twice in 2022 and currently pays a quarterly dividend of $0.52/share, with its yield for the next 12 months (NTM) at 4.35%.
Meanwhile, analysts are bullish on oil. Supply concerns amid continued geopolitical tensions and growing Chinese demand could increase oil prices further. Meanwhile, the midpoint of Suncor Energy’s upstream production guidance represents year-over-year growth of 1.6%. Also, the company has renewed its share-repurchase program, which will lower its share count by 10% over the next 12 months. So, the company’s outlook looks healthy. However, its valuation looks cheap, with its NTM price-to-earnings ratio standing at 7.2.
Canadian Natural Resources
Earlier this month, Canadian Natural Resources reported a solid 2022 performance. Its adjusted net earnings from operations grew by 73.4% amid higher production and higher realization price. Supported by its strategic investments in natural gas assets, the company posted a record annual natural gas production of approximately 2.1 billion cubic feet per day. Despite a marginal decline in crude oil production, the company’s overall annual production increased by 4% to 1,281,434 barrels of oil equivalent per day in 2022.
Supported by its solid financials, CNQ returned around $10.5 billion last year, including $4.9 billion in dividends and $5.6 billion in share repurchases. It raised its quarterly dividend twice in 2022, representing a total increase of 45%. Earlier this month, the company’s board increased its quarterly dividend by another 6% to $0.90/share, with its yield for the NTMs standing at 4.4%.
Meanwhile, given the favourable market and its continued capital investment, I expect the uptrend in CNQ’s financials to continue. Despite its healthy growth prospects, the company trades at a cheaper NTM price-to-earnings multiple of nine.
Amid the ongoing geopolitical tensions, oil prices could remain elevated in the near to medium term, thus benefiting oil-producing companies such as Suncor Energy and CNQ. Meanwhile, given its cheaper valuation and higher exposure to crude oil production, I am more bullish on Suncor Energy.