"We are increasing our fair value estimate for no-moat Suncor Energy to $24/CAD 31 from $22/CAD 28.
Our higher fair value estimate is driven by increased near-term commodity price. The stock is trading
near $17/CAD 22, and we see over 25% upside at those levels. In our view, the market is too narrowly
focused on the temporary decline in demand for refined products along with the issues plaguing the
other upstream companies. We expect refinery demand to pick up when crude oil demand increases,
and Suncor's integrated operations will help generate positive cash flow. Suncor’s downstream
business provides stable cash flows when oil prices are low or differentials widen and hedges against
the company’s upstream production. The stock still offers investors a 3.5% dividend yield in addition to
Suncor generated fourth-quarter cash flow results that exceeded our expectations. It generated funds
from operations of CAD 1.22 billion, up from CAD 1.17 billion in the third quarter. Cash flow from
operations was negatively affected by a CAD 600 million foreign-exchange loss on U.S.-denominated
debt. Adjusting for the debt revaluation, Suncor’s funds flow from operations would have been CAD
1.86 billion. The better-than-expected adjusted cash flow was driven by better-than-expected oil sands
netbacks and downstream throughput."
Morningstrat Equity Analyst Report