Bullish or Bearish — Analyzing 3 Energy Stocks
The energy sector is poised for significant expansion, propelled by escalating crude oil prices. Given this backdrop, let’s analyze the energy stocks Suncor Energy (SU), Marathon Petroleum Corporation (MPC), and Shell plc (SHEL) to see whether investors should be bullish or bearish on the stocks now. Read on….
The energy sector’s outlook appears robust, thanks to the rising oil and gas demand and limited crude supplies. An in-depth analysis suggests that fundamentally strong energy stocks Marathon Petroleum Corporation (MPC) and Shell plc (SHEL) emerge as solid buy candidates now. However, it could also be wise to watch stock Suncor Energy Inc. (SU) for potential buying opportunities.
Let’s first focus on discussing the recent developments within the oil and gas sector before delving into the fundamentals of these stocks.
With only two months remaining in the year, Wall Street analysts and investors are trying to predict shifts in the oil markets. According to OPEC’s 2023 World Oil Outlook, global oil demand could potentially hit 116 million barrels per day (bpd) by 2045 – an increase of roughly 6 million bpd from last year’s prediction.
This surge could surpass expectations, with primary growth drivers being India, China, other Asian nations, Africa, and the Middle East. Global oil demand might reach 110.2 million bpd by 2028.
Amid escalating oil demand, high oil prices could arise due to supply restrictions induced by OPEC+ and Russia’s prolonged production cuts. While the Israel-Hamas conflict has not directly impacted oil distribution, it introduces significant geopolitical risks to the oil market.
Potential sanctions against Iran in response to their suspected involvement in Hamas’ strikes on Israel could aggravate pressure in an already precarious oil market, subsequently driving a further oil price increase.
Oil prices have been volatile over the past couple of months. According to Standard Chartered, its 2024 Brent forecast of $98/bbl is firmly grounded on supply-demand dynamics. Brent prices are estimated to average at $109 per barrel in 2025 and escalate to $128 per barrel in 2026.
In light of these encouraging trends, let’s look at the fundamentals of the three Energy – Oil & Gas stocks, beginning with number 3.
Stock #3: Suncor Energy Inc. (SU)
Headquartered in Calgary, Canada, SU operates as an integrated energy company in Canada and internationally. It operates through Oil Sands; Exploration and Production; and Refining and Marketing segments.
On October 4, SU agreed to purchase TotalEnergies EP Canada Ltd., which holds a 31.23% working interest in the Fort Hills oil sands mining project, for $1.468 billion. The acquisition adds 61,000 bpd of net bitumen production capacity and 675 million barrels of proved and probable reserves to SU’s existing oil sands portfolio. This should bode well for the company.
The company has maximized returns to its shareholders. SU returned $1.4 billion of value to shareholders in the second quarter of 2023 through $684 million in share repurchases and the payment of $679 million of dividends.
In September, the company paid its shareholders C$0.52 per share quarterly dividends. It has a record of paying dividends for 29 consecutive years.
Its annual dividend of $1.54 per share translates to a dividend yield of 4.72% on the current share price. Its four-year average dividend yield is 4.55%. The company’s dividend payouts have grown at a CAGR of 16.3% over the past three years and 7.3% over the past five years.
SU’s trailing-12-month gross profit and levered FCF margins of 60.14% and 17.39% are 26.5% and 183.7% higher than the industry average of 47.53% and 6.13%, respectively. Its trailing-12-month cash from operations of $9.22 billion is significantly higher than the industry average of $653.45 million.
SU’s total revenues and other income came in at C$11.72 billion ($8.45 billion) for the fiscal second quarter that ended June 30, 2023. Its net earnings and net earnings per common share came at C$1.88 billion ($1.35 billion) and C$1.43, respectively.
Moreover, its cash flow provided by operating activities stood at C$2.80 billion ($2.02 billion). As of June 30, 2023, its total current liabilities came at C$12 billion ($8.65 billion), compared to C$12.87 billion ($9.27 billion) as of December 31, 2022.
SU’s revenue and EPS for the fiscal third quarter ending September 2023 are expected to be $9.32 billion and $0.97, respectively. Moreover, it surpassed the consensus revenue in all of the trailing four quarters and EPS estimates in three of the four trailing quarters, which is promising.
Over the past three months, the stock has gained 5.5% to close the last trading session at $32.72. It gained 6.1% over the past six months. The stock is trading above its 100-day and 200-day moving averages of $31.98 and $31.72, respectively, indicating an uptrend.
SU’s fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by…