Earnings Scorecard: Suncor Energy

Earlier this month, Canada’s largest energy company Suncor Energy Inc. (SU) announced its financial results for the fourth-quarter and year-end 2010.

Now that the analysts have had some time to ponder over the quarterly performance of Suncor, they are weighing their estimate revisions. Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the outlook.

Earnings Review

On February 2, 2011, Suncor reported better-than-expected fourth quarter and full-year 2010 results, buoyed by higher oil sands volumes, greater product sales and better margins.

Earnings per share, excluding certain items, came in at 60 Canadian cents (60 cents US) in the fourth quarter, surpassing the Zacks Consensus Estimate of 50 cents and 22 Canadian cents earned in the prior-year quarter.

For full-year 2010, the company earned C$1.75 ($1.75) per share compared with 82 Canadian cents in the prior year. The results were also above our earnings projection of $1.56.

In the reported quarter, total revenue of C$9.79 billion ($9.81 billion) escalated 35.5% from the year-ago level and surpassed the Zacks Consensus Estimate of $9.07 billion. Full-year revenue leaped 38.2% year over year to $34.35 billion.

Cash flow from operations shot up to C$2.14 billion in the quarter from C$1.13 billion in the year-ago quarter, driven by increased production volumes as well as higher realized prices.

Read our full coverage on this earnings report: Suncor Performs Well in 4Q

Agreement of Estimate Revisions

We see a notable number of estimate revisions over the past 30 days, indicating that revisions were in response to the Calgary, Alberta-based energy firm’s year-end earnings release.

However, analysts do not exhibit any consensus on Suncor Energy’s 2011 and 2012 outlook. Out of 11 analysts covering the stock, 3 have revised their estimates for 2011 upward, with the same number making negative revisions. Looking to 2012, the trend is a little more on the positive side. Out of 10 analysts, 2 hiked their estimates as against a single negative revision.

The near-term outlook seems to be bearish as indicated by the greater frequency of negative revisions for the March quarter. Two of the 5 analysts have trimmed their quarterly estimates over the last 30 days, with just 1 making a positive revision.

Though we see Suncor as one of the best positioned companies to benefit from the oil price recovery over the next several years, we remain worried about Suncor’s high debt level and significant anticipated capital expenditure requirements. This is reflected in the mixed trend in estimate revisions.

Magnitude of Estimate Revisions

As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimate for fiscal 2011 has gone down by 5 cents (from $2.46 to $2.41), while for 2012, estimates have dipped by 17 cents (from $3.30 to $3.13). Meanwhile, for the first quarter of 2011, estimates have improved by a penny (from 63 cents to 64 cents) in the last 30 days.

Our Recommendation

Suncor, Canada’s biggest energy firm and the largest oil sands outfit, possesses an impressive portfolio of growth opportunities, a unique asset base and high return potential in the long run.

Embarking on a series of divestitures, the company, which competes with other Canadian behemoths like EnCana Corp. (ECA), Canadian Natural Resources Ltd. (CNQ) etc. – is getting back on track following its merger with Petro-Canada.

Additionally, given our bullish outlook for the medium-term oil price scenario, we think Suncor is nicely positioned to benefit from its leverage to commodity prices.

However, we are remaining on the sidelines at this point until we get better proof of the company’s sustainable operational efficiency. Consequently, we see the stock performing in line with the broader market and maintain our Neutral recommendation on Suncor. This is supported by a Zacks #3 Rank (short-term Hold rating).

SUNCOR ENERGY (SU): Free Stock Analysis Report

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