What happened
Shares of Canadian oil sands giant Suncor Energy (SU 0.28%) jumped 10.3% in April, according to data provided by S&P Global Market Intelligence. What makes that gain stand out even more is that the S&P 500 tumbled 8.8% last month.
The primary catalyst fueling the oil stock's rally was news that an activist investor had built a stake in the company with plans to shake things up.
Image source: Getty Images.
So what
Elliott Investment Management unveiled that it invested in Suncor Energy and held a 3.4% economic interest in the oil company. The activist investor also sent a letter to Suncor Energy's board calling for change. The firm outlined a series of issues with the company, which have caused its share price to stagnate since 2019 despite surging crude oil prices.
Elliott is calling for a board enhancement and a strategic and management review. It sees up to $30 billion in value creation opportunities, which could drive a more than 50% increase in the stock price. Potential changes it outlined were replacing CEO Mark Little, increasing shareholder returns from 50% to 80% of its cash flow after dividends, and exploring the sale of several business units.
One thing about Suncor that the activist investor did like was its plan to spend 10% of its capital expednitures on carbon-reducing projects. That's noteworthy because the company had made a major change to that strategy earlier in the month by strengthening its focus on hydrogen and renewable fuels. It's partnering on a project to build a world-scale hydrogen plant in Alberta and deploying next-generation renewable fuel technologies. As part of this strategy shift, the company plans to sell its wind and solar energy assets.
Now what
Elliott Investment Management has an excellent track record of investing in the oil and gas sector. It invests in companies it believes have underperformed their potential. The firm then tries to work with management teams to improve performance, unlock value, and deliver higher returns for all shareholders.
While Suncor put out a press release stating its openness to working with Elliott, the investment firm leveled some heavy criticism against the board and Little, which could cause some resistance. However, given Elliott's track record of success, and Suncor's relative underperformance, it might be able to persuade other investors to join it in pressing for change. Those future moves could give Suncor Energy's stock the fuel to continue rising in the coming months.
