Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
The energy sector is one of the heavyweight industries on the Toronto Stock Exchange (TSX), with many of its companies boasting strong profitability and generous dividend payouts. Notably, oil and gas stocks dominated the TSX30 list in 2023 and 2024, underscoring that the growth potential of Canadian energy stocks is comparable to other high-growth sectors like technology.
In 2024, Suncor Energy Inc. (TSX: SU) stood out with remarkable stock performance, delivering a stunning year-to-date return of 30%. In contrast, Cenovus Energy Inc. (TSX: CVE) reported a negative total return of 1.2% year-to-date. However, the market landscape may shift dramatically in 2025. As Canada’s two largest integrated energy giants, Suncor and Cenovus both exhibit robust potential for energy stock investments, though their future trajectories might differ significantly.
Suncor Energy, a Canada-based integrated energy company, plays a significant role in the oil and gas sector with a focus on oil sand development, refining, sales, and renewable energy. In 2024, Suncor achieved record-breaking operational and stock performance, setting a challenging benchmark for 2025.
During the third quarter of 2024, Suncor’s refining output reached a record high of 488,000 barrels per day, with asset utilization peaking at an unprecedented 105%. Such operational excellence directly boosted profitability, as every 1% increase in utilization adds approximately $20 million to annual free cash flow. For the first 11 months of 2024, Suncor achieved an asset utilization rate of 98%, significantly up from 88% in 2023. Meanwhile, upstream production also surged by 20% year-over-year.
Suncor’s forward price-to-earnings (P/E) ratio is currently 11.6, with a dividend yield of 4.2%, suggesting reasonable valuation given its market-leading status.
In contrast, Cenovus Energy is positioning itself for a potential breakout year in 2025.
The company has completed significant turnaround work on its U.S.-based Lima refinery and its Lloyd upgrader, addressing historical reliability issues. With expected pipeline completions and production optimization initiatives, Cenovus’s oil sands and U.S. refining businesses are poised for substantial growth in 2025 and 2026.
Cenovus also benefits from improving financial resilience. The company only requires a West Texas Intermediate (WTI) oil price of $45 per barrel to fund its dividends and sustaining capital costs. Including growth capital expenditures, its breakeven point remains low, at just $50 per barrel. This cost structure provides ample room for shareholder returns.
Although Cenovus’s current dividend yield of 3.4% is lower than Suncor’s 4.2%, its 28.6% dividend growth rate over the past 12 months far surpasses Suncor’s 4.6% growth rate. Furthermore, with a forward P/E ratio of 9.5, Cenovus appears to be undervalued relative to its growth prospects.
In 2024, both Suncor and Cenovus achieved their net debt targets ahead of schedule and committed to returning 100% of excess cash flow to shareholders. However, market analysts widely predict a potential earnings contraction for Suncor in 2025 compared to Cenovus, which is expected to deliver high single-digit earnings growth. If Cenovus successfully resolves its refinery reliability challenges, its stock may outperform Suncor’s.
Currently, the average analyst price target for Suncor stock suggests a 16% potential upside, while the target for Cenovus indicates an impressive 42% upside, with a target price of CAD 31 per share over the next 12 months.
In summary, for investors seeking short-term trading opportunities in 2025, Cenovus appears to offer a better risk/reward profile due to its improving operations, clear growth catalysts, and lower valuation. On the other hand, Suncor provides a higher dividend yield, making it a strong choice for long-term, buy-and-hold investors.
Both companies remain attractive options for a long-term, dividend-focused portfolio. Whether to choose Suncor or Cenovus largely depends on an investor’s risk tolerance and time horizon. Nonetheless, both stocks are positioned to reward shareholders significantly, assuming oil prices remain favorable.
