Four months ago (October 16, 2020) National Bank's oil analyst Travis Woods dropped his target price for Suncor from $28 to $21. Yesterday, he raised his target from $33 to $35.
What has changed so much in 4 months to cause Woods to drop his target by 25% (from $28 to $21) and then upgrade his target by 67% (from $21 to $35)?
On Nov 24th, 2020 when Suncor announced they would be taking over as the operator of Syncrude, analysts were skeptical of Suncor CEO Mark Little's remarks about how SU would improve the operating efficiency for Syncrude.
The following are clips from: https://www.midlandtoday.ca/national-business/imperial-oil-set-to-end-syncrude-services-contract-as-suncor-becomes-operator-2906215
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Analysts commenting on the announcement were skeptical about Suncor CEO Mark Little's pledge to improve Syncrude operational reliability to achieve an average of 90 per cent utilization and a cash operating cost per barrel of C$30 per barrel. "The company believes it can drive average utilization rates to 90 per cent as compared to the five-year average of less than 80 per cent, with only six quarters (of the last 20) exceeding the 90 per cent target," pointed out National Bank analyst Travis Wood in a report.
He said the cost target would represent a major change compared with Syncrude's five-year average of C$39 per barrel and would be 10 to 20 per cent lower than recent Syncrude guidance.
CIBC analyst Dennis Fong noted that Syncrude has set similar targets in the past after investing in new operating procedures, maintenance, and supplemental equipment, but has missed because of unforeseen events including Alberta's mandatory oil production curtailments and, this year, an extended maintenance shutdown due to pandemic-related safety measures.
Takeaways:
1) The street was pisssed at the BoD (Little is the messenger) for slashing the dividend. The reduction in the divident was a prudent decision for SU as nobody knew how long the pandemic would decimate demand. However, the market punished SU because CNQ didn't cut their divi. As I posted earlier, fund managers don't like to been seen as making a bad decision and those that held SU looked bad.
2) SU delivered it highest production numbers in history from November through to the end of January without a glitch. Maybe Little isn't so dumb after all as the choice to front load closures when demand was down appears to be a stroke of brilliance.
3) The street is very fickle. It wa only a 100 days ago that Travis Wood and Dennis Fong and other analysts were quick to hold Mark Little's feet to the fire for events that Little couldn't control and questioning Little's ability to implement cost saving measures.
4) Analysts were downgrading their SU targets based upon crappping on Little for his performance (which Little couldn't control) and their belief that Little couldn't deliver on promises which have proven to be wrong.
5) The funny part of all of this is that one of the big concerns of the analysts which caused them to down grade their SU target prices was that their didn't believe Little could deliver when SU took over Snycrude at the end of 2021. It is interesting that nobody is talking about that anymore even though the takeover is still almost a year away.
6) There is nothing like a 50% increase in the price of oil to heal all wounds. SU is now just catching up with the rest of the pack as the street can no longer justify its boycott of SU
Suncor price target lowered to C$21 from C$28 at National Bank National Bank analyst Travis Wood lowered the firm's price target on Suncor to C$21 from C$28
Read more at:
https://thefly.com/n.php?id=3176687
Suncor price target lowered to C$21 from C$28 at National Bank National Bank analyst Travis Wood lowered the firm's price target on Suncor to C$21 from C$28
Read more at:
https://thefly.com/n.php?id=3176687