Suncor – Finally Getting Its’ Mojo Back!

With “Dirty Oil” and Keystone politics making its’ way through this very political year, like a pig passing through a python, Suncor is finally coming back to life after being placed in the penalty box last August.  Let’s have a look at the model price chart.

Suncor with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of SU subsequent to this post will be maintained on Facebook, here.

The calculated model price on Suncor, as at February 24, 2012 is $65.13.  A whopping 76% above the close on the above noted date.  Sometimes on television I’m asked what the difference is between model price and target price.   I seem to interchange these terms at will.  Suncor is an excellent example of the difference in using these terms.  Even though the model price is substantially above the current price, I would use EBV+3 as my target price for Suncor.  That target price would be $52.12, a gain of 40%.  Once reaching EBV+3, we would estimate that further gains would only accrue by the growth in EBV+3, which would be 11.5% annually, still not bad when treasury bills are zero.

Another chart we will present, for the first time in this blog, is one we use for perspective on valuation over long periods of time.

Suncor charting the difference (delta) between Model Price and the market price going back to 1995

This chart goes back to 1995.  We set model price as a constant, at 1.0, which is represented as the dashed line on the chart.  As the differential between model price and the then current market price goes above 1.0, or visually above the dashed line, this would indicate Suncor’s market price would be overvalued in comparison to model price.  Obviously, anything below the dashed line represents an undervalued situation.  The red lines signify one standard deviation, in either direction, of the differential in model price and the then current market price.  The blue line represents the average differential over the whole period represented on the chart.  Over the last 17 or so years Suncor has, on average, traded below its’ model price.  Notice the discount between the dashed line and the blue line.  Therefore, our prediction on “target” price of EBV+3 versus “model price” price objective.  This prediction obviously assumes a “going concern” basis and not a “buy out” situation.  On a buy out we would hold to model price as our price objective.

As one can see, this is the lowest, in terms of valuation differential the Suncor has traded in the last 17 years.  We do not recommended stocks in this blog, however we want to use our database to show statistical relevant items that investors may miss in achieving good returns for their portfolios.  On the statistical valuation front Suncor stands out.

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