Suncor’s Stock Has More Energy Left in the Tank

In December 2022, sentiment around Suncor could not have been worse. The stock had plummeted by 14% over the previous month. On top of that, the company had suffered five tragic fatalities since 2019, more than all of its oil and gas peers combined. As a result, CEO Mark Little stepped down. To make matters worse, an activist investor had acquired stock to push for changes in the company’s strategy.

We saw potential for a turnaround and purchased shares around this time for about CA$41 per share. Since then, our investment has grown by approximately 48%, including dividends.

Three months after our purchase, incoming CEO Rich Kruger was appointed to clean up the mess. Significant strides to improve the company’s safety record have been achieved. There hasn’t been a single fatality on his record. Furthermore, he aims to reduce today’s US$40 breakeven cost per barrel by US$6 over the next two years.

These improvements have quelled their activist investor, Elliott Investment Management. In 2022, Elliott held a 3.4% stake in Suncor, valued at $1.6 billion. Over the years, Elliott has increased its position, now holding a $3 billion interest in the company. After their initial purchase in 2022, Elliott pushed for a strategic review of Suncor’s 1,600 gas stations, which were acquired through the Petro-Canada purchase. However, Suncor determined that selling off these assets wasn’t a prudent move, given the unfavorable market conditions and high transaction costs. Elliott has changed its tone and recently referred to Suncor’s management team as “rockstars”.

With debt now paid down significantly, Suncor is returning an impressive 100% of its free cash flow to shareholders through dividends and share repurchases—months ahead of their original guidance. Kruger even started the conference call in November by saying, “Christmas has come early.” At the time we purchased stock, the company was paying a 4.6% dividend yield. Although the stock price has grown, the dividend yield remains solid at 4.0% today.

For many years, Suncor’s closest peer, Canadian Natural Resources, delivered stronger returns for shareholders. However, Suncor has significantly outperformed its rival. Including dividends, Suncor has appreciated 48%, while Canadian Natural Resources has grown 34% these last two years.

Barring any black swan events, such as another pandemic, which led Suncor to cut its dividend in half in March 2020, we expect this stock to continue to perform well.

-written by Jeff Pollock