Why Wall Street Analysts Raised Price Targets for Suncor Stock

Key Points

• For good reason, analysts gave Suncor stock higher ratings and valuations even after a market-wide selloff. 
• Betting alongside Buffett's bullish view on the oil sector might be one of the reasons behind the boost, but there's more.
• A high dividend and billions of institutional capital flowing into the stock make it a potential watchlist addition.

Wall Street analysts tend to hide whenever stock markets selloff, as the S&P 500 and NASDAQ did at the beginning of last week. Reiterating buy ratings or taking a premature bearish view on stocks could cost them their reputations and their careers, so investors need to place a heavier weight on whatever new rating is revealed recently.

These analysts decided to pick Suncor Energy Inc. NYSE: SU as their top pick among the broader selloffs, so now investors know that due diligence must be done to justify better ratings when most market confidence is lost. But, before digging into the details behind Suncor's attractiveness, understanding the bigger picture can help investors follow the thread.

Dealing with the exploration and refining of oil in Canadian markets can make Suncor a better bet in the coming quarters. The reasoning behind the new analysts' ratings can be attributed to Warren Buffett's also bullish view on the energy sector, so analysts may have hopped on his tail this time to ensure they landed on the right side of history.

A Bet With Buffett Is a Good Bet

After a nine-day buying streak in shares of Occidental Petroleum Co. NYSE: OXY, Warren Buffett ended up owning up to 29% of the company to show the rest of the market his optimistic view toward the energy sector, particularly for oil prices.

Now, why would a bullish bet on oil also be a bullish bet for a renewable energy company like Suncor? It’s all about macroeconomics and price preference, actually. The United States is having trouble keeping up with production currently, as oil inventories have seen a consecutive six-week decline due to rising demand and compressed production.

In response, the U.S. needs to either start ramping up production or ramping up imports. The quick fix is, of course, found in imports, as waiting on production can cause bottlenecks and an unexpected rise in the price of oil.

If Buffett is, as usual, right again on his oil view, then Suncor stands in the eye of the storm and is set up to provide needed oil to one of Canada’s biggest buyers. The stock reacted to these trends and the welcoming analyst ratings by trading higher despite a broader market selloff, this time reaching 93% of its 52-week high.

Analysts at Goldman Sachs have predicted that oil prices could reach up to $100 a barrel this year. While that might hurt most consumers at the gas pump, it also creates an opportunity to offset these rising costs by adding Suncor to a watchlist.

Who’s Betting on Suncor Stock to Trade Higher?

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

This price target is not only the highest among analysts but also directly calls for up to 71.7% upside from where the stock trades today, not to mention a 15-year high for the company. These analysts were alone in their valuations but weren’t on their ratings.

TD Securities analysts followed suit on August 2024, upgrading the stock to “Buy” from a previous “Hold” rating, which says as much about their view as a price target. Joining the party, analysts working for BMO Markets also upgraded the stock in August 2024, this time claiming it as an “Outperform” stock.

More than that, these analysts aren’t alone in their bullish bets for Suncor stock; others on Wall Street have taken a side bet on this company's future, a view that called for up to $3.1 billion of institutional capital to make its way into the stock over the past 12 months.

Investors wonder if today’s level is attractive enough to consider still the stock a buy, mainly since it is so close to its 52-week high. They can look to other metrics to make their judgment. Namely, Suncor pays investors $1.6 a year per share through dividends.

Making this an annualized dividend yield of 4% will let investors beat inflation and stay above most other peers in the Energy Select Sector SPDR Fund NYSEARCA: XLE and U.S. GDP growth rates. In face of all of this bullish evidence, even bears decided to bail out of Suncor stock.

Short interest declined by as much as 15.7% over the past month in the company, showing signs of capitulation from the short side and opening the way for more bullish traders to come and take their place.