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The stock market has experienced a lot of volatility over the last few decades. Energy sector stocks Like Suncor Energy (TSX.SU) and (NYSE.SU) have been riding a roller coaster for most of the past few months. Since the Russia-Ukraine war began, the global energy sector has been in strange flux due to several interest rate rises and the compounding effect of these changes.
Suncor stock, one of the largest energy companies, is currently in an uncertain position. Many believe the outlook for a declining energy demand and rising prices will cause the sector’s stock market performance to worsen. Suncor stock is still a great value for investors who are looking to invest long-term.
Today we’ll take a closer look into the stock of integrated energy companies and determine if it makes for a good investment.
Suncor suffers a significant loss following an oil sands accident at its plant
Safety is a concern in all industries. Suncor’s recent announcement of a worker passing away just a few days before the company’s oil sands operations presentation on July 13 to update investors on production, reliability, safety plans, and performance came as a shock.
It occurred at the Base Plant Mine, located north of Fort McMurray, Alberta. This was the second fatality on the site for this year.
Investor confidence has been shaken by such a tragic incident. A Occupational Health and Safety Investigation in Alberta is ongoing. Chief Executive Mark Little took responsibility for the deaths, and has resigned. He acknowledged that safety problems must be addressed.
Suncor stock trades at $39.74 per shares as of this writing, down more than 25% from its June 8, 2020 high. Suncor stock has increased by nearly 20% year-to-date, despite its recent decline. The latest pullback in its share prices could be attributed to a lack of investor faith in Canada’s third-largest oil producer. After its rapid rise, however, the downturn was almost certain to occur.
The outlook for the energy sector and its valuation will determine whether the investment is a good one.
Are they undervaluing it right now?
Suncor’s recent-most quarter saw a stellar performance by the company. Strong results were achieved by its downstream and upstream operations. The company’s adjusted cashflow was $4Billion, which is almost twice the amount it generated in the same time last year. Suncor trades at 9.17 trailing price to earnings multiple.
Additionally, Suncor stock’s earnings estimates are rising. The current valuation of the oil stock is attractive. However, it could be even more valuable than its multiples indicate.
How about the demand outlook?
Suncor’s share prices have seen many ups and downs in the last few years, much like crude oil prices. While crude oil prices have risen significantly since 2020, they are still well below their current highs at $115 per barrel. Despite decreasing crude oil prices, Suncor stock’s share prices have been doing comparatively better than black gold’s prices.
Suncor’s financial performance has also been strong lately. Suncor has produced substantial cash flows and most of these have been returned to shareholders via a huge 12% dividend increase.
Suncor’s integrated structure has been a major reason for its stellar performance. Its upstream operations are responsible for generating revenue from oil sands operation. It also generates significant revenues through its midstream business, which includes refinery operations.
The supply issues have primarily been the reason for the oil industry’s weakness, but demand will not drop to devastating levels. Despite the limited production capacity, OPEC expects increased demand next year.
Foolish takeaway
Suncor stock’s performance on the stock market has not been great due to several factors. Its valuation is attractive and the outlook for oil and gas remains positive. The dividend yield has increased to 4.73% due to lower share prices. This could be a great time to invest in shares of the company for dividend income and capital gains.