Suncor Energy (NYSE: SU), the leading pioneer in extracting oil from Canada's oil sands, has seen some good days recently thanks to owning high-quality assets in the Athabasca oil sands, one of the world's largest reserves.

The question today is: How does Suncor look to long-term investors?

The fundamentals
While domestic oil production remained flat in 2010, natural gas production for the company rose by 52%, to 399 million cubic feet per day (Mmcf/d). Thanks to a $22 billion acquisition of Petro-Canada in August 2009, Suncor has consolidated its natural gas holdings.

Management's smart move in consolidating natural gas reserves helped fuel a 39% growth in revenues in 2010. This generated positive free cash flow, a figure that was previously negative. Today, FCF stands at $1.3 billion.

Sound strategy
Another example of the company's sound operational strategy is its selling off assets that did not support the company's long-term plans. The divestitures, worth $3.5 billion, have reduced debt to $9.7 billion, from $14 billion. As a result, total debt to equity has fallen to an impressive 30%. Additionally, an interest coverage ratio of nearly 27 indicates that the company is comfortably placed to meet its debt issues.

Value for money
Return on equity of 8.3% shows healthy profitability in terms of investment of shareholders' money. ROE has not fallen below 8% in the past five years. While this figure is currently the lowest, I believe things will only turn better once the market for natural gas turns bullish.

How is the stock valued?
This is how Suncor stacks up when compared to peers:







Return on Assets

Suncor Energy 25.4 10.3 1.8 4.9%

Canadian Natural Resources


30.7 8.4 2.5 3.2%

Cenovus Energy


29.0 12.5 2.9 2.5%

Imperial Oil


19.1 11.9 3.8 10.0%

Apache Corp.


15.5 6.7 2.2 10.7%

Source: Capital IQ, a Standard & Poor's company. TTM = trailing 12 months.

Suncor looks rationally priced from an earnings perspective. However, when priced against its book value, it seems the stock is still underpriced. To back that up, returns on assets look quite impressive, which makes me believe that Suncor's assets are undervalued. I believe the company has the potential to generate higher cash flows and should earn investors a decent return from here, provided the energy market acts in the ways I predict. I'm counting on a natural gas uptick over the next few years.

Foolish bottom line
In all, this stock shows a lot of promise. I believe Suncor has a lot more to achieve. A dividend yield of 1% (although not really impressive) is an additional reason to consider this stock for your portfolio.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.