Sunoco Inc. (SUN) announced plans to boost the storage capacity of the Eagle Point Terminal in Westville, New Jersey, in order to ensure a stable supply of refined products in the region.
The Eagle Point refinery, which has 3 million barrels of active storage, will have an additional capacity of 2 million barrels in 2012. The unit will still have more storage capacity available to return to service.
Sunoco also expanded Eagle Point's deep water marine docks to handle large tankers of 600,000 barrel capacity (AfraMax) and 1 million barrel capacity (SuezMax). The railcar offloading platform at the facility was also upgraded.
In order to sustain smooth supply to the Northeast markets, interconnecting pipelines were installed between Eagle Point and the Colonial Pipeline, Laurel Pipeline and Harbor Pipeline systems. Management has also laid plans to reverse pipelines that could transport imports from the New York Harbor down to Philadelphia.
Sunoco's plans to sell off or idle the Marcus Hook and Philadelphia refineries and exit the refining business has become a matter of concern for people regarding short-supply of products in the Northeast. This initiative of the company assures the retail network as well as commercial customers of a steadfast delivery of gasoline, diesel and other products.
We have a long-term Underperform rating on the stock, considering Sunoco's weak business model, geographically undiversified asset base and operational hindrances. Our pessimistic outlook also stems from the company's poorly performing refining and supply segment, which registered a high loss along with lower realized prices and throughputs in the fourth quarter of 2011.
Additionally, in mid-January, Sunoco completed the separation of its metallurgical coke manufacturing business, to SunCoke Energy Inc. (SXC), a 100% publicly traded company. We believe that the transfer of SunCoke has made Sunoco a less diversified business model. As a result, Sunoco is exposed to greater competitive risks than it was prior to the spin-off.
Hence, we expect Sunoco to perform below the industry, which gives investors little reason to hold the stock.
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