Suncor (SU) Warming Up To Q4 Earnings: What's In The Offing?

Suncor Energy Inc. (NYSE:SU) will release fourth-quarter 2017 results after the market closes on Feb 7.

In the preceding period, the Canadian energy giant reported better-than-expected results on pricing and production gains along with reduced expenses.

Moreover, the company also displays a good history when it comes to beating earnings estimates. Suncor surpassed earnings estimates in three of the last four quarters, with an average beat of 30.24%.

Suncor Energy Inc. Price and EPS Surprise

Suncor Energy Inc. Price and EPS Surprise | Suncor Energy Inc. Quote

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company before the earnings release.

The Zacks Consensus Estimate of 60 cents for the current-quarter earnings has been revised upward by 11 cents over the last 30 days. It reflects about 106.9% growth from the year-ago quarter.

Further, analysts polled by Zacks expect revenues of $6,660 million for the quarter compared with $6,099 million in the prior-year quarter.

Factors at Play

Suncor is expected to realize the benefits of higher volumes from its major project Oil Sands operations. Holding one of the largest positions in the oil sands with the potential of greater long-term returns, the company has a competitive edge over its peers. Last month, the company provided fourth-quarter update, wherein it stated that its production volumes at Oil Sands was 447,000 barrels per day (Bbl/d) including 6,000 Bbl/d from Fort Hills project, reflecting 3.1% rise from the year-ago quarter.

However, the company’s production at Syncrude fell to 174,000 Bbl/d in the fourth quarter, which reflects a decline of around 7% amid operational challenges. Further, the company’s international and offshore exploration and production assets’ volumes also reduced to 115,000 barrels of oil equivalent (BOE/d) as against 118,100 BOE/d a year ago.

As such, Suncor’s total upstream production in the quarter came in at 736,000 BOE/d, reflecting a marginal decline from the $738,500 BOE/d recorded in the prior-year quarter. The production also decreased from third-quarter 2017 level of 739,900 BOE/d.

However, the lower volumes are likely to be offset from higher price realizations, driving the company’s overall revenues. Prices of oil at the end of the fourth quarter were $60.46 per barrel, up about 12.5% and 19.6% year-over year and sequentially, respectively. Improving energy landscape is attributed to tightening supplies, brighter demand outlook and OPEC-deal extension talks.

Further, the company’s refinery utilization came at 94% versus 93% in fourth-quarter 2016. Also the crude throughput in the quarter was 433,000 Bbl/d as against 427,300 Bbl/d in the year-ago quarter. Refined product demand and distillate sales also grew in the quarter compared to the year-ago period.

We believe that that higher commodity prices and better refining and marketing operations year over year will counter the slightly weaker production volumes in the quarter.

Earnings Whispers

Our proven model does not conclusively show that Suncor will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 60 cents.

Zacks Rank: Suncor carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Though a Zacks Rank #2 increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

Conversely, we caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Energy Stocks With Favorable Combination

While an earnings beat looks uncertain for Suncor, here are some companies that you may consider as our model shows that these have the right combination of elements to deliver an earnings beat this quarter.

TOTAL S.A. (NYSE:TOT) has an Earnings ESP of +11.32% and a Zacks Rank #2. The company is expected to release fourth-quarter results on Feb 8.

NuStar Energy L.P. (NYSE:NS) has an Earnings ESP of +14.29% and a Zacks Rank #3. The partnership is expected to release fourth-quarter results on Feb 8.

Devon Energy Corporation (NYSE:DVN) has an Earnings ESP of +0.69% and a Zacks Rank of 1. The company is expected to release fourth-quarter results on Feb 20.

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