SUNCOR ENERGY INC. $39 - Toronto symbol SU

SUNCOR ENERGY INC. $39 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $62.4 billion; Price-to-sales ratio: 1.7; Dividend yield: 1.1%; TSINetwork Rating: Average; www.suncor.com) merged with Petro-Canada in August 2009 to become Canada’s largest integrated-oil company. The company recently formed a joint venture with French oil company Total S.A., to develop two oil-sands projects. Under the terms of the deal, Suncor acquired 36.75% of Total’s Joslyn oil-sands project, which should begin operating in 2017. In exchange, Total received 49% of Suncor’s Voyageur facility, which converts tar-like bitumen from the oil sands into synthetic crude oil. Total also got part of Suncor’s stake in the Fort Hills oil-sands project. Suncor now owns 40.8% of Fort Hills, and Total owns 39.2%; Teck Resources Ltd. (Toronto symbol TCK.B) owns the remaining 20%. Both Voyageur and Fort Hills should begin operating in 2016. In addition to oil-sands projects, Total paid Suncor $1.75 billion in cash. Suncor put these funds toward its $2-billion short-term debt. Its long-term debt of $9.6 billion is a moderate 17% of its market cap. Meanwhile, Suncor continues to benefit from rising oil production and prices. In the three months ended March 31, 2011, earnings rose 32.0%, to $1.0 billion, or $0.65 a share. A year earlier, it earned $779 million, or $0.50 a share. If you exclude unusual items, such as gains and losses on asset sales, Suncor’s earnings per share jumped 291.7%, to $0.94 from $0.24. Cash flow per share jumped 111.1%, to $1.52 from $0.72. Revenue rose 32.9%, to $9.8 billion from $7.4 billion. The company produced an average of 601,300 barrels of oil equivalent (including natural gas) per day in the latest quarter, up 6.5% from 564,600 a year earlier. Crude oil accounted for 87% of Suncor’s first-quarter production, up from 77% a year earlier. Thanks to its improving earnings, Suncor has raised its quarterly dividend by 10.0%, to $0.11 a share from $0.10. The new annual rate of $0.44 yields 1.1%. The stock trades at 13.0 times Suncor’s likely 2011 earnings of $3.00 a share, and 6.4 times its projected cash flow of $6.10 a share. Suncor is a buy.

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