Wednesday, March 30, 2022

Goldman Sachs on Suncor and Cenovus

Suncor Energy Keeps Buy Rating at Goldman Sachs as it Expects Oil Sands Operations to Improve

Goldman Sachs on Wednesday kept its rating on Suncor Energy at buy with a US$38.00 target price as it sees concerns over the reliability of the oil producer and refiner's oil sands operations beginning to wane.

"While SU has substantially lagged over the past few years around management concerns and operational execution, we see room for an inflection in performance as the company progresses through its operational improvements, with SU most recently announcing a change in Mining/Upgrading leadership. While we highlight SU guided to lower volumes on the most recent earnings call, we still see SU trading at a 24% FCF Yield for the year, even with GS at the low-end of SU 2022 volume guidance. We also highlight the stock's peer leading dividend yield of 4.1%, and with SU offering a ~13% 2022 capital returns yield (Canada average of ~12%). Overall, we see 20% total return to SU."

Cenovus Energy Keeps Buy Rating From Goldman Sachs on Expected High Returns

Goldman Sachs on Wednesday reiterated its buy rating on the shares of Cenovus Energy ( CVE ) with a US$19.00 target price as it expects "noise" for the shares of the oil producer and refiner as ConocoPhillips' (COP) continues with plans to sell down its stake in the company,, which stood at around 100-million shares in January.

"We expect CVE performance to inflect, as technical overhangs roll off, including COP's sell-down, as well as CVE contingent payments to COP and noise around hedging/earnings execution," the investment bank noted. "We highlight COP is expected to exit their CVE ownership this quarter, per COP guidance, and also note CVE contingent payments to COP will end in 2Q22. While certain investors have also highlighted the company's hedging strategy as a potential headwind, we note CVE still exhibits a strong 2022 FCF yield of 29%, even after considering hedges. Additionally, we expect a positive rate of change in US Refining, with a more constructive macro setup and following heavy turnaround in 2021. Overall, we see 17% total return to CVE."

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