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Wednesday, 07/07/2004

Oiling Up for Summer
By Nich Sheldon
SU - Suncor Energy Inc

Company Description

Suncor Energy Inc. is an integrated energy company headquartered in Calgary, Alberta. Suncor's oil sands business, located near Fort McMurray, Alberta, extracts and upgrades oil sands and markets refinery feedstock and diesel fuel, while operations throughout Western Canada produce natural gas. Suncor operates a refining and marketing business in Ontario with retail distribution under the Sunoco brand. U.S.A. downstream assets include refining operations in Colorado and retail sales in the Denver area under the Phillips 66 brand. Suncor's common shares (symbol: SU) are listed on the Toronto and New York stock exchanges.

[Source: Company Press Release]

Reasons to Invest:

Suncor Energy Inc (NYSE:SU) has been trending higher for the past 2 years, setting new all time highs this past March, and gliding through an uptick regression channel with ease and grace.

During the first quarter of this year revenues for Suncor increased by 6 percent to C$1.8 billion. However their net income decreased by 42%, or C$215 million, due to an increase in unrealized foreign exchange losses on long-term debt.

While a decrease in net income by nearly half their normal levels is usually not a sign of good things coming, if you can look past this fact, you might be enlightened to note that the company is prospecting a dividend percentage growth rate of 13.24 percent over the next year, 4.23 percent over the next three years, and 2.52 percent over the next five years.

Furthermore, the stock is dirt cheap in respects to most other energy companies, and $100 dollars will get you approximately four shares at SU's current trading range. The company asks that you invest at least a hundred dollars per quarter in order to keep the DRIP active, but it would seem that this $100 bill would buy you more ownership than most of the DOTW's that I have posted over the past year (based upon price alone).

The company also expects an EPS percentage (Earnings Per Share) growth rate of 40.10 percent over the next year, 51.64 percent over the next three years, and 36.35 percent over the next five years. These are pretty hefty EPS expectations, but should these forecasts be correct, we could be seeing our cheap DRIP plan turn more expensive to own come a couple of years. Which only means, the more we invest now, the more money it could hypothetically be worth in a couple of years.

As I sifted through the news surrounding Suncor I found an interesting article by another investment analyst, by the name of John Maloney of BusinessWeek Online. Mr. Maloney speculates that a barrel of oil will stay above $30. He went on to note that it costs Suncor roughly $8 to produce a barrel of oil, while it costs the major oil producers closer to $10 a barrel. He expects Suncor to reach the 35 or 40 range within a year, and further speculates that he expects SU earnings to be $4 a share in 2005 (this is way higher than the estimates). His calculations note for every $1 increase in the price of oil, adds an additional $0.22 per share to Suncor's cash flow. Maloney reported that Suncor has produced 10 percent more oil per year, for the last decade, and believes that the company will be drilling 500,000 gallons a year in seven years. At the end of the article, Charles Maxwell (oil maven) of Weeden Securities Firm notes "Suncor is the oil stock to own... [Suncor] will be No. 1 in production growth."

I read that Suncor estimates that their production will continue to grow at ten percent per year for the next four years, in an article by Salim Haji, produced on June 17th. The significant thing to note about this is that neither BP, RD, CVX, or XOM have averaged more than a three percent growth in oil production for the past five years. If the oil giants can't continue to produce more oil than these underdog oil producers such as SU, PZE or E, then we may see these underdogs start taking the limelight as crude oil prices remain in the $30 per barrel range.

Suncor's weekly chart looks fundamentally solid. While the past two weeks have been in the red for this energy producer, the stock is still trending nicely in an October 2002 regression channel. Actually if you went all the way back to when the company was listed on the NYSE, you could see that the stock has been in a regression channel since being listed at $6.50 in 1997. That is of course with the exception of Dec 03-May 04 when the stock popped over the top of this initial regression channel. In fact, Suncor has just recently made a run at the top of this channel in the past few weeks, closing just over the top bar of the channel, which has been in the $25 range for the past few months.

The weekly MACD indicator is showing signs of a fresh bullish crossover, yet the bearish bars remain over the bullish bars by .10 points. The Stochastics indicator has just sparked a fresh buy signal in neutral territory.

The monthly chart has Suncor just over the top of that 1997 regression channel. The MACD and Stochastics indicator shows SU on a strong buy signal in neutral territory.

The only thing that I see different on the Quarterly chart is that the stochastics indicator is on a sell signal, albeit in overbought territory, where the stock has basically consolidated since being listed.

Suncor Energy Inc offers one of the smallest dividends ever featured here on the Drip of the Week column, but due to the high expectations and my personal speculation, I still feel the investment will come back ten fold. Their annual dividend is $0.1751 per share owned, which tallies out to an annual yield of 0.67 percent.

This ends another exciting episode of the Drip of the Week. Stay tuned next week, as we will spotlight another stock worthy of the limelight.

Until Next Week,
Nich Sheldon

Broker Recommendations

Strong Buy         3
Buy                8
Hold               8
Sell               2
Strong Sell        0

Brokers Covering  21

DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = No
Accept Foreign Accounts: Yes
Temper Enrollment: Yes

Min/Max Investment = $100-$5,000/quarter

Reinvestment Fees - 
Dividend investment fees: $0.00
Cash investment fees: $0.00
Auto reinvestment fees: N/A

Transfer Agent:
Montreal Trust

Corporate Headquarters:
112-4th Avenue S.W.
Calgary, AB T2P 2
Phone: (403) 269-8151
Fax: (403) 269-6218


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