Why Investors Should Consider Selling Suncor Energy Stock Now

Suncor Energy SU has long been a cornerstone of Canada’s oil and energy sector. With operations that stretch from the oil sands in Alberta to offshore drilling and a national network of Petro-Canada gas stations, it is one of the most recognized and established names in the industry. For years, Suncor has been seen as a stable, go-to investment in the energy space. But recently, that reputation has started to show cracks. Despite the broader oil and energy sector facing a turbulent quarter, many of its peers, like Imperial Oil Limited IMO and Cenovus Energy Inc. CVE, have managed to push ahead, while Suncor, on the other hand, is falling behind.

Three-Month Stock Snapshot

Over the past three months, the stock returned 4.9%. That might not sound bad on its own, but this is underwhelming when compared with other players in the same space.

The integrated oil and gas sub-industry of Canada saw a slightly higher gain at 5.9% and competitors like Imperial Oil  (7%) and Cenovus Energy(11.1%) pulled ahead by an even wider margin. The standout performer, Gibson Energy GBNXF, surged 19%, a clear signal that Suncor is not just lagging slightly, it is being left behind.

This kind of underperformance raises important questions. When competitors with similar market exposure, such as Imperial Oil, Cenovus Energy and Gibson Energy, are showing relatively better share price performance, it is worth asking why Suncor is not keeping up. The issue goes deeper than just one bad quarter, there are underlying challenges affecting the company’s outlook.

From its sensitivity to volatile oil prices and elevated capital expenditures to mounting regulatory pressures and the challenges of a global energy transition, there are multiple factors undermining Suncor’s performance. Let us take a closer look at the key issues driving this underperformance.

Key Risks Faced by Suncor Energy

Exposure to Volatile Oil Prices and Refining Margins: Suncor’s earnings are heavily tied to WTI prices and crack spreads, which remain unpredictable. In first-quarter 2025, refining margins declined 24% year over year, impacting profitability despite higher volumes. The company acknowledged risks from U.S. tariffs and global demand fluctuations, which could pressure cash flows if oil prices weaken further. Imperial Oil and Cenovus Energy have managed to mitigate some of these risks, demonstrating stronger resilience in volatile times.

High Capital Expenditures and Turnaround Risks: Suncor’s C$6.1-C$6.3 billion capital expenditures (CapEx) plan for 2025 includes major turnarounds, such as the 91-day Upgrader 1 coke drum replacement. Any delays or cost overruns could disrupt production and cash flow. The company also faces inflationary pressures on labor and materials, which could erode margins. Meanwhile, Gibson Energy has shown how more nimble operations in the midstream space can buffer the negative effects of high capital spending.

Regulatory and Political Uncertainty in Canada: Suncor operates in a challenging regulatory environment, with potential risks from emissions caps and federal policies. The industry’s recent letter to the government highlights concerns over investment barriers, which could limit growth. Any adverse policy shifts may increase compliance costs. Cenovus Energy and Imperial Oil are also dealing with these uncertainties, but they have positioned themselves in ways that are allowing for more flexibility in navigating these challenges.

Debt Levels and Financial Leverage: While net debt improved to C$7.6 billion, it remains elevated. A prolonged downturn could strain balance sheet flexibility, especially if buybacks continue at the expense of debt reduction. The debt-to-capital ratio of 18.7 indicates leverage, though management targets further deleveraging.

Long-Term Energy Transition Risks: Suncor’s heavy reliance on Oil Sands (high carbon intensity) exposes it to ESG scrutiny and decarbonization pressures. While the company invests in lower-carbon projects, its core business may face challenges in a shifting energy landscape. Gibson Energy, with its diversified business model, and Cenovus Energy, with the focus on lower-carbon initiatives, are making strides to mitigate such risks.

Operational Execution Risks in Major Projects: The autonomous haul truck expansion and mine optimization initiatives are promising but untested at full scale. Any technical failures or productivity shortfalls could delay cost-saving targets. Similarly, refinery upgrades require flawless execution to avoid downtime.

Competitive Pressures in Retail and Refining: Suncor’s Petro-Canada network faces competition from discount fuel retailers and EV adoption. While high-grading sites helps, the C$200 million EBITDA growth target is ambitious and depends on consumer trends. Imperial Oil, with its strong refining presence and Gibson Energy, with the focus on logistics, are less exposed to these retail pressures.

Commodity Price Differentials and Currency Risks: While narrower light-heavy oil differentials supported first-quarter results, a potential widening of these spreads could negatively impact future realizations. Moreover, a stronger Canadian dollar may reduce USD-denominated earnings.

Verdict for SU Stock       

The Zacks Rank #5 (Strong Sell) company faces multiple challenges that may hinder its attractiveness as an investment. The company remains highly exposed to volatile oil prices and refining margins, which significantly affect earnings and faces rising CapEx with execution risks in major projects. Regulatory uncertainty in Canada and elevated debt levels further compound financial vulnerability, especially in a prolonged downturn.

Additionally, the energy transition, competitive pressures in retail and untested operational initiatives add to the long-term risk profile. Until the company demonstrates stronger financial performance and operational stability, it is advisable to look elsewhere for opportunities in the oil and gas sector.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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