We are initiating coverage on Suncor Energy (SU) with a Neutral recommendation and a target price of $36.
Calgary, Alberta-based Suncor is one of the leading Canadian integrated oil and gas companies engaged in crude oil and natural gas production, as well as in refining and marketing. The company’s upstream business is primarily focused on producing synthetic crude oil from Alberta’s oil sands. Suncor’s business can be divided into three segments: Oil Sands, Natural Gas and Energy Marketing & Refining.
We like the company for its highly visible production growth profile through its oil sands-focused upstream business. The recent Petro-Canada acquisition has further strengthened Suncor’s resource base by adding new oil sands properties, international assets in the North Sea, North Africa and Latin America, as well as impressive refining capacity. The ‘new’ Suncor boasts huge oil sands reserves, a strong Canadian downstream operation, solid conventional exploration and production assets, and low-cost production from Canada’s east coast and internationally.
However, the uncertain macro environment, integration risks and high acquisition-related debt continue to cloud Suncor’s value. We also remain wary of the company’s significant anticipated capital expenditure requirements (C$5.5 billion for 2010).
Considering these factors, we feel that the stock will perform in line with the broader market.
Read the full analyst report on “SUN”
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