Why Wall Street analysts raised their price targets for Suncor shares

Wall Street analysts tend to hide when stock markets sell off, as happened with the S&P 500 and NASDAQ earlier last week. Repeating buy recommendations or being prematurely bearish on stocks could cost them their reputations and careers. Investors therefore need to give more weight to any new rating that is released recently.

These analysts chose Suncor Energy Inc. NYSE: SU as their first choice among the broader sell-offs, so investors now know they need to tread carefully to justify better ratings when most market confidence is lost. But before delving into the details behind Suncor’s appeal, looking at the bigger picture can help investors follow the common thread.

Exploration and refining of oil in the Canadian markets can make Suncor a better bet in the coming quarters. The reasons for the new analyst ratings can be attributed to Warren Buffett’s equally bullish view of the energy sector, so this time the analysts may have latched onto him to make sure they land on the right side of history.

A bet with Buffett is a good bet

SO

Suncor Energy

$39.67

-0.12 (-0.30%)

(As of: 09.08.2024 ET)

52-week range

29,45 €

▼

41,50 €

Dividend yield

4.03%

P/E

8.84

Target price

$54.75

After a nine-day buying wave of shares in Occidental Petroleum Co. NYSE: OXYWarren Buffett eventually owned up to 29% of the company to show the rest of the market his optimistic view on the energy sector, especially regarding oil prices.

Why would a bullish bet on oil also be a bullish bet for a renewable energy company like Suncor? Really, it’s all about macroeconomics and pricing preferences. The United States is currently struggling to keep up with production as oil inventories have declined for six weeks in a row due to rising demand and reduced production.

In response, the US must either increase production or increase imports. The quickest solution is, of course, imports, because a halt in production can lead to shortages and an unexpected increase in oil prices.

If Buffett’s oil forecast is correct, as usual, Suncor will be in the eye of the storm and able to supply one of Canada’s largest consumers with the oil it needs. The stock responded to these trends and positive analyst reviews by trading higher despite a broader market sell-off, this time reaching 93% of its 52-week high.

Goldman Sachs analysts have predicted that oil prices could reach as high as $100 a barrel this year. While that will likely hit most consumers at the pump, it also offers an opportunity to offset those rising costs by putting Suncor on a watch list.

Who is betting on a rise in Suncor shares?

Starting with the analysts who risked their careers and reputations on that call, Wolffe Research first began coverage on the stock in July 2024. Their rating? “Outperform” with a $68 per share price target for Suncor stock.

Not only is this price target the highest among analysts, but it also suggests upside potential of as much as 71.7% from today’s share price, not to mention a 15-year high for the company. These analysts were alone in their ratings, but not in their valuations.

Analysts at TD Securities followed suit in August 2024, upgrading the stock from a previous “Hold” rating to “Buy,” which says as much about their view as it does a price target. Analysts at BMO Markets also joined the party, upgrading the stock in August 2024, this time to an “Outperform” rating.

Moreover, these analysts are not alone in their bullish bets on Suncor stock; others on Wall Street have also made a side bet on the company’s future, investing as much as $3.1 billion in institutional capital in the stock over the past 12 months.

Investors are wondering if today’s level is attractive enough to still consider the stock a buy, especially since it is so close to its 52-week high. They can also use other metrics to make their assessment. For example, Suncor pays its investors $1.60 per share per year in dividends.

With an annualized dividend yield of 4%, investors can beat inflation and outperform most other competitors in the market. Energy Select Sector SPDR Fund NYSEARCA: XLE and US GDP growth rates. Given all these optimistic signs, even the bears decided to exit Suncor stock.

Short positions in the company have declined by as much as 15.7% over the past month, suggesting capitulation on the short side and paving the way for more optimistic traders to take their place.

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