Energy stocks are having a bit of a moment lately. Yet there are some doing even better than others. When it comes to choosing between Baytex Energy (TSX: BTE) and Suncor Energy (TSX: SU) on the TSX, investors have two distinct options in the energy sector. But which might be the better buy? Let’s delve into both of these stocks. Here, we’ll consider recent performances, financial health, and market positions to determine which might be the better buy right now.
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Some background
Baytex Energy, headquartered in Calgary, Alberta, focuses on crude oil and natural gas production, primarily in the Western Canadian Sedimentary Basin and the Eagle Ford formation in the United States. Suncor Energy, also based in Calgary, operates as an integrated oil and gas company, with activities spanning oil sands development, refining, and retail operations through its Petro-Canada brand.
In the first half of 2024, Baytex reported a significant rebound, with production surging approximately 73% to an average of 152,407 barrels of oil equivalent per day (boe/d). This led to an 87% increase in adjusted funds flow, reaching $956.7 million. Meanwhile, Suncor’s second-quarter results showed a 12% rise in adjusted operating earnings to $3.4 billion, with adjusted funds from operations up 16% to $6.6 billion.
As to stock performance, Baytex’s stock price stood at $4.09 at writing, reflecting a 5.1% year-to-date return. Suncor’s stock was priced at $52.46, with a year-to-date return of 15.7%. All this is well and good, but are these stocks still a valuable buy?
Valuation
First, let’s consider what investors can grab right away – a dividend. Baytex offers a quarterly dividend with an annualized payout of $0.09 per share, yielding about 2.1%. Suncor provides a more substantial dividend, with an annual payout of $2.18 per share, yielding approximately 4.2%.
Then there’s the financial health of both companies to make sure dividends and growth can continue. Baytex’s total debt stands at $2.3 billion, with a debt-to-equity ratio of 57.4%. Suncor has a total debt of $15.6 billion and a debt-to-equity ratio of 35%.
Meanwhile, Suncor’s integrated operations, including refining and retail, provide a buffer against oil price volatility. Baytex, being more focused on exploration and production, is more susceptible to fluctuations in commodity prices. However, analysts currently rate Baytex as undervalued, estimating a potential upside of about 47% from its current price. Suncor is estimated to have a 12-month upside potential of around 15%.
Bottom line
So with all this taken into consideration, which is the better buy for investors, Suncor or Baytex? If you’re seeking higher potential returns and are comfortable with increased risk, Baytex might be appealing due to its growth prospects and current undervaluation. However, if stability and consistent dividends are your priorities, Suncor’s diversified operations and stronger financial health make it a more prudent choice.
In either case, you’ll receive a solid dividend yield that looks supported by stable payouts. Yet, as always, consider your investment goals and risk tolerance before making a decision. But if you’re interested in getting into energy stocks offering value and dividends, these both look like strong options.
