SU is Morgan Stanley's Top Pick
Posted: Thu Dec 16, 2010 8:51 pm
They are assuming that oil prices will continue to rise after January 1. I agree. They also like DNR for the obvious reason that it is heavily weighted to oil. OAS and SD are high on their list and high on my Watch List too. - Dan
Suncor is our preferred name on this theme. We see the
relative underperformance of SU vs. oil-levered peers as an
opportunity. We attribute this underperformance to uncertainty
surrounding the 2011+ production growth and capex program.
This underperformance is marked in light of a significant
improvement in crude fundamentals and strengthening of the
commodity (12-month strip up ~7% since early November).
Reaffirming long-term outlook likely lifts an overhang for
the stock. While some uncertainty remains concerning the
ordering of projects in the backlog and near-term growth
potential, we expect guidance in-line with the growth trajectory
SU has discussed since the Petro-Canada merger (6-7%
corporate growth, 10-12% oil sands) through 2020. We expect
2011 guidance to be for capital expenditures of C$6+ Bn and
production of 585 mboepd (ex asset sales). This disclosure
should address investor concerns and likely acts as a catalyst
for the shares to play catch up vs. oil levered peers.
Little material change expected with upcoming guidance,
but a re-ordering of project priorities a real potential. We
expect SU to re-affirm its longer-term growth priorities from the
core oil sands business, reducing uncertainty surrounding the
name and lifting an overhang on the stock. A number of
considerations likely see a re-ordering of projects at the current
time. Bottom line, we do not expect guidance disclosure to
entail projects specifics that are materially negative relative to
current consensus expectations.
Suncor is our preferred name on this theme. We see the
relative underperformance of SU vs. oil-levered peers as an
opportunity. We attribute this underperformance to uncertainty
surrounding the 2011+ production growth and capex program.
This underperformance is marked in light of a significant
improvement in crude fundamentals and strengthening of the
commodity (12-month strip up ~7% since early November).
Reaffirming long-term outlook likely lifts an overhang for
the stock. While some uncertainty remains concerning the
ordering of projects in the backlog and near-term growth
potential, we expect guidance in-line with the growth trajectory
SU has discussed since the Petro-Canada merger (6-7%
corporate growth, 10-12% oil sands) through 2020. We expect
2011 guidance to be for capital expenditures of C$6+ Bn and
production of 585 mboepd (ex asset sales). This disclosure
should address investor concerns and likely acts as a catalyst
for the shares to play catch up vs. oil levered peers.
Little material change expected with upcoming guidance,
but a re-ordering of project priorities a real potential. We
expect SU to re-affirm its longer-term growth priorities from the
core oil sands business, reducing uncertainty surrounding the
name and lifting an overhang on the stock. A number of
considerations likely see a re-ordering of projects at the current
time. Bottom line, we do not expect guidance disclosure to
entail projects specifics that are materially negative relative to
current consensus expectations.