Analysts say Suncor stock will rise, if the company follows the path of activists

Suncor’s energy facility in Sherwood Park, Alberta, Canada, August 21, 2019. REUTERS/Candice Elliott

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

Florida-based Elliott Investment Management published an open letter to the Suncor board of directors on Thursday. In it, Elliott partner John Pike and portfolio manager Mike Tomkins described “a slow-moving and overly bureaucratic corporate culture that seems to have lost the dynamism that made Suncor the most valuable energy company in Canada not too long ago.”

Elliott, which holds a 3.4 percent economic stake in Suncor, is looking to add five new directors to the company’s board of directors. Its restructuring plan calls for the Calgary-based Integrated Energy Company to review the sale of its gas station retail network, improve its safety track record and increase shareholder returns, among its recommendations.

Suncor said in a statement Thursday that it “values ​​the views of its shareholders and will take the time to carefully evaluate the recommendations and materials presented, with the goal of enhancing shareholder value and other stakeholders.”

“The Board of Directors and management of Suncor look forward to engaging with Elliott in a timely manner to better understand their view,” the company added.

Elliott says her plan will raise the company’s stock price to $68.

Toronto-listed Suncor stock fell less than one percent to $47.07 per share at 12:35 p.m. ET Friday. According to Elliott, the stock has lagged its oil peers an average of 91 percent over the past three years.

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

Credit Suisse analyst Manav Gupta believes there is “a lot of common ground between Suncor management and [the] The Elliott team is working together, particularly on improving the safety and reliability of operations. “

In a note to customers, Gupta also expressed confidence that Suncor could close the performance gap between its shares and competitors in the United States and Canada, if the company follows the path outlined by Elliott.

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

“The message from Elliott in our minds can be a catalyst for the stock following the movement we saw in stocks today,” he wrote in a research note on Friday, noting the stock’s gains of more than 11 percent in the news.

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

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

For years, the Suncor stock has been closely followed by Canadian institutions and individual investors. on Friday, Globe and Mail Scott Barlow, market strategist, noted that Suncor is the only Canadian company included in the “Top Conviction Stock Picks” list of North American stock analysts at Morgan Stanley.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter Tweet embed.

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