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What Lies Ahead for Suncor Energy's (SU) Earnings in Q2?

Suncor Energy Inc. SU is set to release second-quarter 2020 earnings results on Wednesday Jul 22.

The Zacks Consensus Estimate for the to-be-reported quarter’s loss is pegged at 50 cents per share and for revenues stands at $4.07 billion.

Let’s delve into the factors that might have impacted the company’s performance in the June quarter.

Factors to Impact Q2 Results

Following the Petro-Canada acquisition, Suncor Energy became one of the largest owners of oil sands in the world. Further, the company’s newly-gained oil sands properties, which enrich its operating portfolio in northern Alberta, make it emerge as the leading producer in the region where its reserves come a close second to Saudi Arabia.

The company’s cost-reduction efforts have also been encouraging throughout. It controls its capex at a steady pace by limiting its spending levels. For 2020, the company intends to trim its capital budget by nearly 26% to the C$3.9-C$4.5 billion range from its prior projection after reckoning the ongoing crash in commodity prices. This, in turn, should boost the company’s earnings and generate higher cash flows.

However, Suncor Energy’s first-quarter 2020 operating earnings from the downstream unit decreased to C$165 million from the year-ago figure of C$1,009 million due to FIFO losses associated with the significant decline in commodity prices. Moreover, the company recorded soft refined product sales in the March quarter, which fell to 531,500 barrels per day (BPD) from the prior-year level of 542,800 BPD due to lower refinery utilization levels, a trend that most likely continued in the second quarter as well. In fact, Suncor already anticipated the second quarter to be weakest in terms of consumer demand for refined products due to the coronavirus crisis.

Further, the company’s upstream unit witnessed an operating loss of C$5 million against a profit of C$492 million in the prior-year quarter, thanks to weak price realizations and mandatory production curtailments. This downtrend is also likely to have continued in the second quarter too.

What Does Our Model Say?

Our proven Zacks model predicts an earnings beat for Suncor Energy this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Suncor Energy has an Earnings ESP of +19.66%.

Zacks Rank: Suncor Energy currently carries a Zacks Rank #3, which increases the predictive power of ESP.

Highlights of Q1 Earnings & Surprise History

In the last reported quarter, Suncor Energy’s operating loss per share of 15 cents was narrower than the Zacks Consensus Estimate of a loss of 19 cents, attributable to higher contribution from Fort Hills operation.

However, the year-ago bottom line was a profit of 58 cents per share. This downside in the year-over-year performance is due to softness in commodity prices and elevated costs and expenses.

Quarterly operating revenues of $5,783 million fell short of the Zacks Consensus Estimate of $8,492 million. Moreover, the top line dropped 18.18% from $7,068 million in the year-ago quarter.

As far as the earnings surprise track is concerned, this Alberta-based company’s bottom line surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed the same on the remaining occasions. The average negative surprise is 3.04%. This is depicted in the graph below:

Suncor Energy Inc. Price and EPS Surprise

Suncor Energy  Inc. Price and EPS Surprise
Suncor Energy Inc. Price and EPS Surprise

Suncor Energy Inc. price-eps-surprise | Suncor Energy Inc. Quote

Stocks to Consider

Some other firms worth considering from the energy space on the basis of our model that shows that these too have the right combination of elements to beat on earnings this season are as follows:

Murphy USA Inc. MUSA has an Earnings ESP of +16.97% and a Zacks Rank of 3, currently. The company is scheduled to release earnings on Jul 21.

Halliburton Company HAL has an Earnings ESP of +14.94% and is presently Zacks #3 Ranked. The company is scheduled to release earnings on Jul 20. You can see the complete list of today’s Zacks #1 Rank stocks here

National Oilwell Varco, Inc. NOV has an Earnings ESP of +16.36% and is #3 Ranked at present. The company is scheduled to release earnings on Jul 27.

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National Oilwell Varco, Inc. (NOV) : Free Stock Analysis Report
 
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Suncor Energy Inc. (SU) : Free Stock Analysis Report
 
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
 
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