As one of Canada’s leading oil and gas companies, Suncor Energy (TSX: SU) has a long history of resilience. Today, Suncor stock continues to rally as the company continues to offer reliability, growth, and dividend income.
Let’s take a look at whether this energy stock is a good buy for 2025
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Suncor’s business
As Canada’s leading integrated oil and gas giant, Suncor has a long history of success. The business is comprised of a downstream business (refining) as well as an upstream business (exploration and production). This diversification provides Suncor with the benefit of more predictable and steady cash flows. In turn, this leads to a stock that should command a premium multiple due to the safety of its cash flows and dividend. This is the long-term view.
But somewhere along the way, the company lost its edge, and things began to fall apart. A less-than-favourable safety record, as well as operational inefficiencies and challenges, hit the company and, of course, the stock.
Today, the Suncor stock is trading near all-time highs as the company has addressed these issues and more.
Suncor’s recent results
The company’s second-quarter results once again reflected the momentum of the business, which has been driven by excellent execution. Utilization rates were high, which drove excellent efficiencies and operating results. This was reflected in Suncor’s earnings per share (EPS) growth of 32% to $1.27 — strong growth that far exceeded expectations that were calling for EPS of $1.08.
Similarly, Suncor’s free cash flow came in strong, at $1.4 billion, 30% higher than the same period last year. In turn, dividend growth and share repurchases have been increased. In fact, Suncor returned more than $1.5 billion to shareholders in the quarter. This return of capital to shareholders sets the stage for what’s to come as Suncor continues to generate impressive amounts of cash flow.
Looking ahead
In determining whether Suncor stock is a buy, sell, or hold, I’d like to now turn to valuation and what’s ahead for the company.
Suncor stock is currently trading at eleven times this year’s expected earnings with a dividend yield of just over 4%. As the company continues to squeeze out efficiencies and drive the bottom line, I expect this valuation to increase.
For example, production increases and strong refinery utilization are the result of Suncor’s operational improvements. Management expects that this will continue. As a result, free funds flow is expected to grow by more than $3 billion by 2026. As per management, 75% of these excess funds will be allocated to share buybacks.
Finally, taking a look at the risk side of the equation, it’s worth noting that Suncor sees enough opportunity from its existing asset base to support growth. This means that no significant capital will be directed toward growing production. Easy, low-hanging fruit means that production increases will be a low-risk activity.
The bottom line
As Suncor progresses into 2025, we can expect to see the momentum that the company has built to continue to sustain it. Suncor stock is trading at inexpensive levels, and its growth profile, in conjunction with its risk profile, commands a higher multiple, in my view. In short, I believe that this energy stock is a buy for 2025.
