We are downgrading Suncor Energy (SU) shares to Underperform from Neutral, reflecting its weak near- to medium-term production outlook and the Petro-Canada acquisition-related risks. Recently, the company cut its 2010 targeted oil sands output following an upgrader fire in February.

After the Petro-Canada acquisition, we also remain worried about Suncor’s high debt level and significant anticipated capital expenditure requirements. Further, there are operational and execution risks associated with the integration of Petro-Canada’s predominately conventional assets, of a type and in geographies where Suncor lacks experience.

These factors, coupled with the current uncertainty in commodity prices, make Suncor a bearish case. This is reflected in our downgrade of the company’s shares. Our $29 price objective reflects a 2010 P/E multiple of 15.2x.Zacks Investment Research