Buyers searching for publicity to Canada’s profitable oil and gasoline business ought to think about Suncor Power Inc. (TSX:SU), a number one built-in power firm.

Earlier this week, Suncor reported one other blow-out quarter, which included report operational and monetary efficiency. This has translated to robust and constant shareholder worth creation.

For the reason that earnings launch, Suncor Power’s inventory value has rallied greater than 6%. Is the inventory a purchase?

One other report quarter

Suncor is a really differentiated identify within the oil and gasoline business. It holds upstream property, operates refining and upgrading amenities, and owns the Petro Canada community of 1,800 retail and wholesale areas. What this implies is that Suncor is diversified throughout the oil and gasoline worth chain. This advantages Suncor and its shareholders, because it drives constant and regular money flows.

In Suncor’s third quarter, we noticed the advantages of its diversified enterprise as soon as once more. We additionally noticed the advantages of a tradition of operational excellence. Prices have been pushed downward on the similar time that manufacturing elevated. Therefore, money flows and margins rose properly. Administration’s concentrate on return on capital was on full show as soon as once more.

Upstream manufacturing got here in at 870,000 barrels per day (bpd), the most effective ever third quarter. Upgrader utilization was 102%. And refining throughput of 492,000 bpd was one other report. The important thing level that I’d prefer to drive residence right here is that even with these will increase in manufacturing and throughput, Suncor’s working prices got here in at $9.7 billion – flat versus final 12 months. That is true worth creation.

Worth and efficiency

Regardless of reporting yet one more report quarter, with report operational and monetary efficiency, it seems to be like Suncor continues to be underappreciated by the market. Are Suncor’s previous struggles in charge for this? Are buyers nonetheless skeptical? What has to alter to get Suncor’s inventory value to mirror its inherent worth?

I do assume that buyers are most likely nonetheless skeptical in relation to Suncor. And herein lies the chance: as a result of this skepticism is misplaced, as Suncor has turned issues round spectacularly. That is evidenced in Suncor’s monetary and operational efficiency in the previous couple of years. However what’s going to it take for buyers to take discover?

The reply, I feel, is solely time and Suncor persevering with to do what it has been doing in the previous couple of years. If Suncor can proceed to ship on its steerage, which is asking for robust efficiency, it’s very probably that Suncor’s inventory will probably be re-rated increased.

Valuation

Within the meantime, Suncor continues to create worth for its shareholders. Within the final three years, the inventory has risen 26%. As you’ll be able to see from the graph beneath, the inventory has truly carried out nicely within the final 5 years – up virtually 230%.

Additionally, Suncor Power inventory has loads to supply dividend buyers as nicely, with a yield of greater than 4% and robust dividend development. Actually, its annual dividend has elevated 36% within the final three years – for a compound annual development price (CAGR) of virtually 11%.

But, Suncor Power’s inventory is nonetheless cheap, buying and selling at a mere 13.5 occasions this 12 months’s anticipated earnings and 1.6 occasions its guide worth. It appears to me that Suncor’s robust money move and earnings development profiles, together with its robust stability sheet and returns are deserving of a better valuation.

The underside line

A superb rule of thumb in relation to investing is to search for high quality corporations which can be delivering actual worth for shareholders. That is what we’re seeing with Suncor. Though it’s an oil and gasoline firm and due to this fact uncovered to commodity costs, the corporate has created a enterprise that minimizes threat and volatility and maximizes returns.