Yahoo Finance Scotiabank downgrades Suncor Energy, upgrades Imperial Oil
It has price targets of $50 and $72, respectively, for both oilsands companies
Incoming Suncor Energy (SU.TO)(SU) CEO Rich Kruger will have his hands full with operational issues when he officially starts work next month. That's according to a Scotiabank Global Equity Research analyst downgrading shares of the Canadian energy giant on Tuesday.
At the same time, Jason Bouvier is issuing an upgrade for Imperial Oil (IMO.TO)(IMO), the oilsands company Kruger ran for six years till 2019.
Suncor announced Kruger as the replacement for interim CEO Kris Smith last month. Smith led the company since last summer, when Mark Little was ousted after a combination of safety and performance issues tarnished the company.
"We believe Rich Kruger will bring a fresh and experienced set of eyes to some of the operational issues Suncor has experienced over the past few years. However, there is still plenty of work to do," Bouvier wrote in a research note on Tuesday. "Key items include safety, minimizing downtime, reducing operating costs, and replacing production at aging mines."
Suncor's aging Base Plant mine is expected to shut down in the mid-2030s. Bouvier says the site's roughly 270 million barrels per day of production is no small amount to replicate.
"While we believe Suncor has ample resources and available free cash flow to fund [capital spending to replace Base Plant], it's simply a question of magnitude and the corresponding impact on shareholder returns," he wrote.
The analyst also notes that while all major oilsands producers are expected to significantly ramp up spending on managing their carbon footprint, Suncor pollutes more per barrel than many peers.
Bouvier downgraded Suncor shares from "sector outperform" to "sector perform" on Tuesday, while maintaining a $50 price target on the company's Toronto-listed stock.
Meanwhile, he sees Imperial hitting its stride with production records and improving refinery use. Bouvier says the company's Kearl mine is on track to hit 280 million barrels per day in 2024, a year ahead of schedule. He adds that Imperial's balance sheet provides "increased stability in a world of continued macro issues," naming inflation and the ongoing banking crisis.
Bouvier says Imperial also has the best exposure among its peers to improving heavy oil differentials, the spread between Western Canadian Select crude and the U.S. benchmark, West Texas Intermediate (CL=F).
"We expect the differential to continue narrowing on the back of improved egress and strong global demand trends," he wrote in separate research published on Tuesday.
Bouvier upgraded TSX-listed Imperial shares from "sector perform" to "sector outperform," while maintaining a $72 price target.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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