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Sunoco LP SUN is a master limited partnership involved in the distribution of motor fuel to roughly 10,000 customers that include independent dealers, commercial customers, convenience stores and distributors. Its customers are based in more than 30 states.
The stock has dipped 3.8% in the past year compared with the 20.7% decline of the industry it belongs to. Though the stock has lost in the past year, the partnership has potential to grow in the near term. In fact, four analysts have raised 2020 estimates for Sunoco in the past 60 days, while none have downwardly revised the same.
What Makes Sunoco a Compelling Buy?
Huge Fuel Distribution Operation
In the United States, Sunoco is among the largest motor fuel distributors in the wholesale market by volume. The partnership’s distribution networks, spanning across 30 states in the domestic market, reflect strong business, with sustainable and predictable cash flows. Notably, the partnership's extensive fuel distribution operations sold 8.2 billion gallons through 2019, up 4% from the 2018 level. The numbers are expected to go up from here in the coming days.
The partnership is poised to gain from strong gasoline demand and rising consumption of diesel fuel. Sunoco reported that gasoline consumption through the last few years in the United States rose significantly. Also, the partnership expects consumption of diesel to increase in the coming days. More use of refining productions in the domestic market will likely drive demand for wholesale fuel distribution businesses, getting accretive to Sunoco’s distributable cashflows.
The partnership is currently focused on reducing costs and expenses, which are expected to benefit its bottom line. Notably, through 2019, total cost of sales decreased to $16,132 million from $16,649 million reported in the year-ago comparable period. Moreover, during this period, lease expenses declined. The trait is expected to help the partnership in increasing the profit levels in the coming quarters as well.
EBITDA to Rise
Sunoco’s diversified growth strategy is commendable. Its strengthening fuel distribution and terminalling businesses are expected to bring higher profits in the coming days. As such, the partnership expects adjusted EBITDA of $670-$700 million for 2020, suggesting a rise from the 2019 level of $665 million.
As of Dec 31, 2019, Sunoco had cash and cash equivalents of only $21 million, and net long-term debt of $2,898 million. However, its ability to generate strong excess cash flow is commendable, which can help it reduce the debt burden and support its growth projects.
Zacks Rank & Other Stocks to Consider
Sunoco currently sports a Zacks Rank #1 (Strong Buy). Some other top-ranked stocks in the energy sector include Hess Corporation HES, Centennial Resource Development, Inc. CDEV and Superior Energy Services, Inc. SPN, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hess’ bottom line for 2020 is expected to rise 91.6% year over year.
Centennial Resource’s earnings for first-quarter 2020 are expected to rise 50% year over year.
Superior Energy’s bottom line for first-quarter 2020 is expected to rise 42.9% year over year.
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Hess Corporation (HES) : Free Stock Analysis Report
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