Penn West Petroleum Ltd (USA) (PWE), Encana Corporation (USA) (ECA): A Cheap Canadian E&P Company for Your Portfolio

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Suncor Energy Inc. (USA) (NYSE:SU) is trading at $29.60 per share with a total market cap of $44 billion. The market values Suncor Energy Inc. (USA) (NYSE:SU) at a higher price-to-book ratio of 1.1 but a much lower EBITDA multiple of only 4.42. Suncor Energy Inc. (USA) (NYSE:SU) is considered the largest player in the oil sands with 6.9 billion in proved plus probable reserves and as much as 23.5 billion in contingent resources. For 2013, the company expects to spend around $7.3 billion in total capital expenditure, including nearly $4.2 billion in oil sands and $1.85 billion in Exploration & Production.

Suncor Energy Inc. (USA) (NYSE:SU) also has a decent capital structure. As of March 2013, it had more than $39.2 billion in equity, nearly $4.4 billion in cash, and only nearly $10.95 billion in debt. Moreover, it also recorded nearly $10.5 billion in deferred tax liabilities, which could be considered an interest free loan from the government.

Investors might be interested in Suncor Energy Inc. (USA) (NYSE:SU) as the company has kept increasing its cash return to shareholders. In the second quarter of 2013, the company expects to increase its dividend by 54%, and has a compounded annual growth rate of 30% in the past five years as far as dividend growth is concerned. Moreover, since 2011, Suncor reported that it has returned as much as $2.5 billion to shareholders in the form of share buybacks.

In April 2013, its Board of Directors authorized an additional $2 billion share repurchase program, representing an additional buyback yield of 4.5%. At the current trading price, it offers shareholders a dividend yield of 2.6%.

My Foolish take

Penn West seems to be a good stock to play the company’s turnaround under the new management. With the potential non-core assets divestment, cheap price-to-book valuation, stronger balance sheet with potential debt reduction, and juicy dividend yield, Penn West might suit the long-term portfolios of energy investors. According to Barron’s, FrontFour Capital analyst, Badal Pandhi, based on the sum-of-the-parts analysis, it is believed that Penn West should be worth $18-$19 per share, a 65% – 74% premium to its current trading price.

The article A Cheap Canadian E&P Company for Your Portfolio originally appeared on is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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