Earnings Scorecard: Suncor Energy

Leading integrated energy firm Suncor Energy (SU - Analyst Report) reported mixed third-quarter 2012 results on October 31, 2012, with earnings per share topping our expectation and revenue coming below our projection.

We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook on the stock.

Third Quarter Recap

Suncor’s quarterly earnings per share, excluding certain items, came in at 85 Canadian cents (85 US cents) in the third quarter, surpassing the Zacks Consensus Estimate of 75 US cents.

Comparing year over year, the results dropped 25.4% from C$1.14 per share earned in the prior-year quarter, primarily due to steeper operating expenses and low oil price realized.

In the reported quarter, total revenue of C$9.60 billion ($9.64 billion) slipped 7.9% from the year-ago level as well as missed Zacks Consensus Estimate by 6.0%.

Agreement of Analysts

Looking at the estimates’ revision trend, it becomes clear that most of the analysts project a mixed outlook for Suncor through the last leg of 2012.

Of the total 7 analysts covering the stock, 3 have raised their estimates and 2 have moved in the opposite direction over the last 30 days for the last quarter of 2012. In the last 7 days, one analyst revised its estimate downward, while none increased the same.

For fiscal 2012, 8 analysts (out of 12 covering the stock) have upped their estimates in the last 30 days, while 4 analysts went for downward revisions. However, over the last 7 days, only two analysts decreased the earnings estimate, as against no upward revisions.

The estimate revisions for the upcoming quarter and full-year 2012 indicate the analysts’ sentiment based on the company’s resource rich asset line up, strong market position and wide range of growth opportunities. However, the not-so-favorable oil and natural gas market conditions along with environment regulations continue to be an overhang on the company’s shares.

Magnitude of Estimate Revisions

Reflecting the influence from analysts’ earnings revision, in the last 30 days, the Zacks Consensus Estimate for the fourth quarter jumped to 85 cents from 78 cents. Seven days ago, the earnings estimate was 86 cents.

For the full year, the earnings estimate moved up to $3.36 from $3.07, over the last 30 days. A week before, the estimate recorded was $3.39.

Earnings Surprise

With respect to earnings surprise, Suncor showed positive trend in the last 4 quarters. The company recorded a minimum surprise of 1.2% in the first quarter of 2012 to the maximum of 13.3% in the third quarter of 2012. On an average, the earnings surprise was a positive 6.9%.

Our Recommendation

We are maintaining our Neutral recommendation on the stock, as we see limited upside over the near term. Suncor currently retains a Zacks #3 Rank, (short-term Hold rating).

One of the premier energy outfits in Canada, apart from Encana Corp. (ECA - Analyst Report) and Canadian Natural Resources Ltd. (CNQ - Analyst Report), Suncor is characterized by a robust portfolio of high-return projects, unique asset base and various strategic initiatives. We believe that the company will reap benefits from its oil-weighted production mix and strong on-going in situ operations.

However, we prefer to stay on the sidelines due to the unstable oil and natural gas fundamentals, inflationary cost conditions and operational hindrances. Foreign currency fluctuations also pose a major threat for the company.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/