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

Suncor Energy Inc. (USA) (NYSE: 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.