Let’s evaluate which of Suncor Energy and Canadian Natural Resources would present outstanding purchasing opportunities in light of the recent pullback.
Even though Saudi Arabia announced a reduction in production, oil prices have fallen more than 17% from their April highs. Oil prices appear to have fallen due to worries about how long-term high interest rates may affect global growth. Suncor oil (TSX:SU) and Canadian Natural Resources (TSX:CNQ) have been under pressure recently due to the weakness in the oil sector.
Let’s now examine the oil market prospects and determine which stock, Suncor Energy or Canadian Natural Resources, could be a superior investment.
Projected oil prices
According to the International Energy Agency, oil demand will increase by 2.4 million barrels per day to 102.3 million barrels per day in 2023, which would be a record. Oil consumption may increase as Chinese demand picks up. Furthermore, according to estimates from OPEC (Organisation of the Petroleum Exporting Countries), daily oil demand will increase to 110 million barrels by 2045.
Oil prices may rise in the upcoming quarters as a result of the announcement of production cuts by OPEC and its allies as well as increased demand. Goldman Sachs predicts that Brent crude will reach US$86 a barrel by December, which would represent a 16.5% increase from its current levels. In the meantime, experts are bullish on oil. Oil-producing enterprises may gain from rising oil prices. Let’s examine the current performances and growth plans of both companies in light of the beneficial climate.
Suncor Power
Suncor Energy reported adjusted operating earnings of $1.809 billion for the quarter that ended in March, a 34% decrease from the same period the year before. Its earnings were negatively impacted by lower crude oil realisations, a drop in upstream output, a decrease in refinery throughput, and greater operating costs. Its adjusted funds from operations also decreased 27% to $3 billion during this time.
However, the business concentrates on portfolio optimisation by purchasing a 14.65% working interest in Fort Hills and selling the U.K. E&P (exploration and production) portfolio, along with wind and solar assets. In the past two years, it has used its surplus cash flows to reduce its debt and repurchase shares, which could improve its financial performance going forward. It also pays a $0.52 per share quarterly dividend to its shareholders, resulting in a forward yield of 5.41%.
Natural Resources in Canada
Along with decreasing price realisation, Canadian Natural Resources also saw a severe decline in its financial performance. Its adjusted operating earnings decreased by 44% to $1.88 billion, while its adjusted fund flows decreased by 33% to $3.43 billion from $4.98 billion in the same period last year. However, as of May 4, the business has given its stockholders back almost $2.8 billion through dividends and share repurchases.
Notably, the business anticipates investing over $5.2 billion in capital this year to support its 70,000 barrels of oil equivalent per day increase in output. Given its long-life, low-decline assets, the company would break even at mid-US$30 per barrel West Texas Intermediate crude prices. So I am positive on CNQ since oil is currently trading significantly higher and is expected to rise even more.
For the previous 23 years, CNQ increased its dividends at a 21% CAGR (compound annual growth rate). Its future yield is a respectable 4.94%.
Investor conclusion
Both businesses have been under pressure over the past few weeks due to the drop in oil prices. Compared to its 52-week high, Suncor Energy’s stock value has down by 23.5%, while CNQ is down by 13.5%. Suncor Energy and CNQ trade at next 12-month price-to-earnings multiples of eight and 10, respectively, as a result of the selloff dragging down their values.
Although both stocks present fantastic buying opportunities given the recent corrections and favourable valuation, I am more positive on CNQ due to its steady returns, diversified asset allocation, and continuous dividend increases.