Despite Suncor Energy Stock's Relative Strength, TD Securities Downgrades

Suncor Energy Inc. (USA) SU announced its 2018 capital program and production outlook, reducing capex and increasing production.

The Analyst

TD Securities' Menno Hulshof downgraded the stock from Buy to Hold, with a price target of $50.

The Thesis

The analyst said that midpoint 2018 production guidance reflects around 9 percent year-over-year increase, while midpoint 2018 capex guidance reflects a decrease of $750 million. At crude oil price of $55 per barrel, Hulshof forecasts that Suncor Energy is going to generate $5 billion of free cash flow and a funding surplus of $1.5 billion, reducing net debt/total capitalization to around 20% by year end.

Suncor Energy retains one of the best fundamental outlook within Canadian coverage, said Hulshof. He decided to downgrade the stock because he expects a 7 percent reduction in 2018E CFPS and a target return of only 13 percent. The stock is trading at 8.7 times consensus 2018E EV/EBITDA, which is the top end of its historical multiple.

The Price Action

Suncor Energy reached its 52-week high Nov. 13, but is trading 3.6 percent below its 52-week high.