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Suncor (TSX.SU.)(NYSE.SU.) Recently, Suncor announced an agreement it had reached with activist shareholders who had demanded changes at the integrated oil company. Investors who are following Suncor stock will now be interested in the possibility of a new rally.
The battle against activist investors Elliott Investment Management appears to have reached its tipping point with ongoing safety concerns following a recent production site death. Suncor’s CEO just exited the company, and the board is undergoing changes.
Suncor is adding independent members to its board. Elliott Investment Management is given the authority to nominate an additional director if the company fails to meet new performance targets.
Elliott Investment Management is now addressing a demand Suncor initially refused to meet. The company agreed to conduct a strategic review of its retail operations, which includes a network of approximately 1,500 Petro-Canada stores. Suncor will be testing the waters for a sale of this division in order to unlock its value.
Investors who appreciated the integrated business structure of Suncor have always been a fan of Suncor. In most instances, oil prices fell due to the combination of the refineries and retail groups. However, the pandemic was quite another. The crash in fuel demand caused oil prices to plummet, not because of increased supply.
According to one analyst, the retail business could be worth over $11 billion. Suncor’s current market capitalization is $58 billion, so a deal in that range would free up some meaningful capital that could go back to shareholders as a special dividend or be used to bulk up the production assets.
WTI oil was above US$120 per barrel on two increases this year. A pullback has brought it down to $101, but up from a recent dip below US$95 after Saudi Arabia said it isn’t planning to raise output, despite pressure from the American president.
Many analysts believe that the OPEC leader is limited in his ability to increase supply, and that the whole global oil sector is in the same position. The ability of major oil producers to rapidly increase their output has been severely affected by a sharp decline in investment over the last two years. Concerns about meeting emission goals have led to companies that are able to increase production not making significant investment commitments.
A recession could slow down demand growth in the next couple of years, but it won’t stop the recovery in fuel consumption. Once they have overcome the summer season challenges, airlines will increase their capacity. Commuters will be in the millions by this fall.
Volatility is to be expected in oil markets, but WTI crude oil could stay around the US$100 mark. That’s a very profitable price for Suncor and its peers.
Suncor stock worth buying?
Suncor is trading at close to $40 per share at the moment of writing. That’s down from the 2022 high above $53, so there is decent upside potential on the next surge, even without value creation from a sale or spinoff of the retail business.
Suncor stock is a great choice if you have some spare cash. Suncor stock is a solid investment and offers a solid 4.7% yield.