Oil prices have surged as geopolitical tensions in the Middle East are keeping investors on edge. And if you’ve been following Canadian energy stocks lately, you’ve probably noticed how quickly changing oil prices can influence sentiment toward the sector. Suncor Energy (TSX: SU), which is scheduled to report its third-quarter results on Tuesday, November 3, is one energy stock I’m watching closely as its share price has already doubled over the last year.
So, is Suncor heading for another blockbuster earnings announcement? Not necessarily.
Investors should remember that the latest rally in crude prices could be temporary, so its effect on Suncor’s third-quarter results might not significantly affect its long-term growth outlook. That’s why, beyond the recent oil price surge, I’d be more interested in looking at how Suncor’s underlying business performed during the quarter and whether its financial fundamentals remain strong.
Let me explain what I’ll be watching when Suncor reports earnings on Tuesday and why Canadian energy investors should look beyond the latest profit figures.
What has supported the recent rally in Suncor stock
In short, Suncor mainly focuses on operating oil sands, offshore assets, refineries, and Petro-Canada stations. Its shares currently trade close to $111 per share, giving it a $131 billion market cap and a 2.2% annualized dividend yield.
Suncor stock has gained 15% over the past month alone and 100% over the last year, leaving it just slightly below its all-time high. Record refining activity, stronger cash generation and rising buybacks have supported that rally.
What Suncor’s last quarter revealed
In the second quarter, Suncor’s adjusted operating earnings surged 336% year-over-year (YoY) to $3.8 billion, mainly due to higher prices realized on upstream production and stronger refining margins. As a result, its net earnings rose 229% YoY to $3.7 billion, while adjusted funds from operations jumped 98% to $5.3 billion. Better cash generation and lower capital spending also helped free funds flow more than quadruple to a record $3.38 per share.
During the quarter, the company’s refineries were a major bright spot. Its refinery throughput rose 6% YoY to a second-quarter record of 470,600 barrels per day, while refined product sales climbed about 9%. Fewer maintenance activities backed refining volumes, and record jet fuel sales helped lift product sales.
However, Suncor’s upstream production fell nearly 6% YoY in the June quarter, mainly because of a planned turnaround at Firebag. That makes production recovery especially important to Tuesday’s earnings.
What Suncor investors should watch on Tuesday
With Suncor stock near its record high, you may want more than another strong profit number. A rebound in upstream volumes would be reassuring, especially if refining operations maintain their momentum. But I’ll also watch how much cash the business generates and what management says about shareholder returns.
Notably, Suncor returned nearly $1.8 billion through dividends and repurchases in the second quarter. And it recently raised monthly share buybacks to $750 million beginning in October, up from $500 million.
Interestingly, Suncor is also aiming to increase its normalized free funds flow by $2 billion and lower its West Texas Intermediate oil price breakeven by US$5 per barrel by 2028. These efforts could help the company generate stronger cash flow, especially if oil prices remain high, although refining margins and operating costs will also play an important role.
Tuesday’s results will cover July through September, but the recent rally in crude prices could make Suncor’s outlook just as important as its quarterly numbers. That’s why I would definitely pay attention to management’s comments on production trends, refining margins, and expected cash generation in the coming quarters. These are some of the key factors I’ll be watching to assess whether Suncor stock could sustain its recent momentum.
