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We Need More Oil

Stock (Symbol) Stock Price

Suncor (SU)

$36

Data is as of Expected to Report Sector

December 8, 2010

Feb 2

Energy & Commodities

Sharek’s Take
Note: The charts and data used in this article are from December 8, when SU was $36. Today, January 31,the stock is $41.
  
David SharekSuncor will be purchased in the Growth Portfolio today because we need more oil. Suncor is a Canadian integrated oil company, which brands include Sunoco (not the U.S. Sunoco) and Petro-Canada. Suncor was the first company to derive oil from oil-sands. Its now grown into producing and marketing natural gas, and Suncor even has four wind farms.
 
Oil is going to be hot in 2011. As I speak there is protesting in Egypt (which is getting the oil headlines) but the big reason for oil’s rise is economies are growing and need more energy. Exxon (XOM) just reported today, making $1.85 last quarter (up 47% year-over-year), beating the $1.63 estimate.
One-Year Chart
This is SU’s chart from December 8th. What’s not shown is SU broke out then it closed at $40 on Friday (due to the Egyptian crisis). Overall this stock is selling for around 15-16 times earnings and profits for the next couple of quarters should be good. I think the estimated Long Term Growth Rate  of 30% is far-fetched.
Earnings Table
 Profits jumped 83% last quarter as sales rose 17%. Earlier in 2010, SU’s profit growth was negative.
 
Suncor has beat the street in each of the last three quarters. With the good news from Exxon today, SU could beat again when it reports Wednesday.
 
I don’t have back-data for SU’s Annual Profit Estimates to gauge whether these are rising or falling, but I like this:
 
2009 $0.88
2010 $1.51e (+72%)
2011 $2.47e (+64%)
2012 $3.12e (+26%)Profit growth looks solid in three of the next four quarters.
Fair Value
I think Suncor can get to 20 times earnings. Either that or estimates can increase and SU can get to $49 with a P/E in the teens. Keep in mind this Fair Value was done when the stock was selling for $36. Now at $41, it looks like the stock could go to $49 which is upside of around 20% this year.
Ten-Year Chart
In the ten-year chart you can see SU has compounded at a rate of 19% a year — another reason the stock should have a P/E of 20. Yearly EPS growth is only 7% because profits had been pulled down. If SU can make $3 in profits again, $41 is a good price to pay.
Power Ranking Bottom Line
Growth Portfolio

5 of 21

Suncor is hitting 52-week highs as oil stocks attempt to become the leading sector in the stock market. Although this isn’t a typical David Sharek stock with a new an innovative product that thrusts profits higher, the stock and sector are timely.
 
SU is ranked 5th in the 21 stock Growth Portfolio Power Rankings. I won’t purchase the stock in the Aggressive Growth Portfolio because its not sexy enough and lacks huge upside to Fair Value.

Aggressive Growth Portfolio

N/A

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