A strong earnings report from Suncor Energy Inc. this morning is a sign that the outlook for Canada’s energy sector has turned a corner and is in an upturn, according to David Szybunka, portfolio manager and managing director of Canoe Energy Team.
Suncor shares gained five per cent on Wednesday after the company announced earnings premarket, numbers that beat expectations on most metrics including hitting a debt target ahead of schedule, and even a dividend hike.
The stock is up 27 per cent year-to-date but Szybunka says there’s plenty more room to run based on the company’s financial performance.
“They hit their $8 billion debt target sooner than the street was anticipating, now they’re handing back 100 per cent of free cash flow to shareholders… all of this overall is just a really good print,” he said.
Szybunka says overall sentiment in the oil patch has improved so much that last week’s news of an emissions cap for oil and gas companies would normally have led to a slew of angry phone calls from investors, but instead his phone didn’t ring at all on the subject.
“This is called an upturn,” he said. “We were in a downturn, we are now in an upturn.”
While he is bullish on the sector, Szybunka says that valuations and outlooks for large and intermediate energy companies are quite a bit brighter than those for some of the smaller ones, which is why he thinks merger and acquisition activity in Canada “is going to continue to pick up steam.”
He noted that big companies like Canadian Natural Resources Ltd. in oil and Tourmaline on the natural gas side have a track record of making savvy acquisitions at the right time, which is a good lesson for investors to follow.
“Maybe we just follow what the smart guys are doing in the sector,” Szybunka said.