Has Suncor Energy Inc. (USA) (SU) Become the Perfect Stock?

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Suncor has had to deal with the same headwinds that many of its energy-related peers recently. With oil prices in North America remaining fairly stagnant under a glut of unconventional production from shale plays and other new finds, Suncor hasn’t seen the revenue growth it enjoyed in past years. Moreover, with Suncor’s oil sands production coming with a relatively high cost structure, the company is less able than its peers to take risks that rely on having oil avoid even modest price declines in the future.

Still, Suncor has avoided more substantial losses that Canadian Natural Resource Ltd (USA) (NYSE:CNQ) and Penn West Petroleum Ltd (USA) (NYSE:PWE) have suffered for one reason: It has refinery capacity conveniently located near its Alberta production sites, helping it avoid the infrastructure bottleneck that has constrained its competitors from shipping heavy crude from the sands to outside refineries. A pipeline project from Enbridge Inc (USA) (NYSE:ENB) should take at least another year to complete, giving Suncor valuable time to profit from its competitive advantage.

In its most recent earnings report, Suncor posted somewhat disappointing results, missing earnings and revenue estimates by a wide margin. The big concern investors have is that Suncor may choose not to follow through on expanding its Voyageur upgrader facility, having taken a $1.5 billion writeoff on the long-delayed joint venture with TOTAL S.A. (ADR) (NYSE:TOT). That could hurt both companies going forward.

For Suncor to improve, it needs to come up with a strategic vision that encompasses the economic realities of the oil sands right now. By overcoming maintenance issues with its Newfoundland operations and successfully fighting a huge billion-dollar tax bill from Canada’s revenue agency, Suncor could well see margins improve and get the stability to boost its dividend further, pushing the stock closer to perfection.

The article Has Suncor Energy Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Total.

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