On Tuesday, Citi upgraded the Sunoco LP (NYSE:SUN) stock from Neutral to Buy, setting a price target of $65.00. The firm noted that Sunoco had underperformed relative to its benchmark over the past three months, attributing the decline to several technical factors.
These included merger-related index rebalancing, a significant exchange-traded note (ETN) maturity, and a downturn in refining sentiment, with the refining index dropping 20% since early April.
Despite these challenges, Sunoco has reaffirmed its 2024 guidance, and the expected cost synergies from its recent merger with Energy Transfer’s (NYSE:ET) fuel distribution business, Sunoco LP, have improved by $50 million to a total of $200 million.
The firm acknowledged concerns around breakeven margin compression due to recent macroeconomic trends but indicated that factors such as volatility in reformulated blendstock for oxygenate blending (RBOB) and inflation could continue to support wholesale fuel margin strength.
Citi's analysis suggests that Sunoco's current trading levels imply an 8.0 times 2025 estimated EBITDA, which is approximately 0.5 times below the company's historical average. The firm anticipates that as Sunoco starts to realize more significant cost synergies from the acquisition, the multiple could further decrease to 7.5 times based on 2026 estimated EBITDA.
The upgrade reflects a positive outlook on Sunoco's financial performance in light of the recent acquisition and the firm's ability to navigate market volatility and inflationary pressures. Citi's new price target of $65.00 represents a potential upside from Sunoco's current trading price, suggesting confidence in the company's future earnings and market position.
In other recent news, Sunoco LP has been in the spotlight following a series of significant developments. Sunoco reported a strong start to 2024 with record first-quarter earnings, announcing an adjusted EBITDA of $242 million, a 9% increase from the previous year.
This performance was supported by strategic transactions, including the acquisition of NuStar Energy and the divestiture of convenience stores. The company also witnessed a 9% increase in volume with over 2.1 billion gallons sold.
Stifel, JPMorgan (NYSE:JPM), and Mizuho Securities have all recently upgraded their ratings on Sunoco's stock. Stifel highlighted the recent decline in Sunoco's unit price as a key reason for their upgrade to 'Buy', citing an attractive opportunity for investors.
JPMorgan resumed coverage with an Overweight rating, increasing the price target to $61, citing the potential for a more diversified company with greater stability and growth prospects following the acquisition of NuStar Energy. Mizuho Securities upgraded Sunoco's stock from Neutral to Buy, reflecting confidence in the company's robust outlook.
These recent developments underscore Sunoco's commitment to growth and its strategy to maintain a strong balance sheet for future investments. The forthcoming management guidance, expected on or before the second quarter 2024 earnings report, is anticipated to provide a comprehensive update on the company's outlook for 2024, including its core business, the recently acquired NuStar assets, and the potential for synergies.
InvestingPro Insights
Following Citi's upgrade of Sunoco LP, a closer look at real-time data from InvestingPro paints a detailed financial picture of the company. With a market capitalization of $4.61 billion and a reasonable P/E ratio of 12.03, which adjusts slightly to 12.15 when looking at the last twelve months as of Q1 2024, Sunoco appears to be valued fairly in the current market. The company's PEG ratio during the same period stands at 0.59, suggesting potential for future earnings growth relative to its earnings multiple. Additionally, Sunoco's revenue for the last twelve months as of Q1 2024 reached $23.2 billion, although it experienced a slight decline of 9.67% in revenue growth during this period.
Investors might also be encouraged by Sunoco's dividend yield of 6.41% as of mid-2024, coupled with a dividend growth of 6.07%, which can be appealing for those seeking income. Moreover, the company's stock has seen a 29.6% total return over the past year, indicating a strong performance despite recent market volatility. For those looking for more insights, InvestingPro provides additional tips on Sunoco LP, and by using the promo code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription. As of now, there are 7 additional InvestingPro Tips available for Sunoco, which could further guide investors in making an informed decision.
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