Undervalued Value Stocks: Suncor Energy
Suncor Energy is a Canadian energy company that specialises in production of synthetic crude from oil sands. Its stocks are trading around the same level as a decade ago. The reason for this is a lack of investors’ satisfaction as the firm delivers low incomes. Operational income was down by 29% as EPS tumbled to $1.36, and the Free Cash Flow was down by 21% to $2.26 per share.
It is worth remembering that energy companies are cyclical, and the sector is now recovering. Most of the companies from the sector have rewarded their shareholders, including Suncor. It spent $874 million for buy back of its shares and $690 million on dividends during the last quarter.
The management is planning to spent $5.8 billion on Capex and acquisition of TotalEnergies SE Canadian-based assets. This acquisition is very promising as Suncor will increase its oil sands reserves by 10% immediately after the deal is closed. This deal is largely financed by borrowed funds, which is the only risk factor. However, the company is planning to pay off $9 billion of its $15.7 billion debts by the end of 2024. It is also planning to spend half of its FCF on buy backs, and increase this buy backs to 75% of FCF in 2025.
Investors that are prepared to act against the market by adding SU stocks to their portfolios with a huge discount could be largely rewarded when the market sentiment changes.
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