Suncor shares will climb if the company follows activists’ path, analysts say

The Suncor Energy facility is seen in Sherwood Park, Alberta, Canada August 21, 2019. REUTERS/Candace Elliott

Suncor Energy (SU.TO)(SU) the management has “a lot in common” with the US activist investor pushes for changes at Canadian energy giant. That’s according to analysts who say the situation could ultimately lift the company’s lagging stock.

Florida-based Elliott Investment Management released a open letter to Suncor’s board of directors Thursday. In it, Elliott partner John Pike and portfolio manager Mike Tomkins describe a “sluggish, overly bureaucratic corporate culture that seems to have lost the momentum that recently made Suncor Canada’s most valuable energy company. “.

Elliott, which owns a 3.4% economic stake in Suncor, is seeking to add five new directors to the company’s board. Its restructuring plan asks the Calgary-based integrated energy company to review the sale of its retail gas station network, improve its safety record and increase shareholder returns, among its recommendations.

In a statement on Thursday, Suncor said it “values ​​the views of its shareholders and will take the time to carefully evaluate the recommendations and materials provided, with a view to enhancing value for shareholders and other parties.” stakeholders”.

Elliott says his plan would raise the company’s stock price to $68.

Toronto-listed Suncor shares fell less than 1% to $47.07 per share as of 12:35 a.m. ET on Friday. According to Elliott, the stock has lagged its oil sands peers by an average of 91% over the past three years.

“The company that was once the industry leader is now a ‘show me’ story to investors,” Pike and Tomkins wrote in their letter.

Credit Suisse analyst Manav Gupta believes there are “a lot of commonalities between Suncor’s management and [the] Elliott to work together, particularly with regard to improving the safety and reliability of operations.”

In a note to clients, Gupta also expressed confidence that Suncor can close the performance gap between its shares and rivals in the United States and Canada, if the company follows the path blazed by Elliott.

George Huang of Raymond James says investor confidence in Suncor has been shaken over the past two years, in part due to “operational missteps” and a dividend cut that has since been reversed.

“Elliott’s letter in our minds could serve as a catalyst for action beyond the move we saw in stocks today,” he wrote in a research note on Friday, referring to the gain of more than 11% of the action the day before.

“Elliott’s plan underscores the inherent value of Suncor’s asset base and the dislocation in valuation caused by the past 24 tumultuous months,” he added. “If the market is now willing to pay more attention to a sum-of-the-parts approach in valuing Suncor’s stock following today’s events, we believe this will have positive implications for the assessment of Suncor in the short and medium term. “

Gupta maintains an “outperform” rating on the stock and a 12-month target price of $50. Huang also maintains an “outperform” rating and a price target of $50.

For years, Suncor shares have been closely watched by Canadian institutional and retail investors. Friday, Globe and Mail Market strategist Scott Barlow noted that Suncor is the only Canadian company on a list of “most compelling stock picks” from North American equity analysts at Morgan Stanley.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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