Sunoco Logistics Cut to Neutral - Analyst Blog
18 Marzo 2013 - 3:50PM
Zacks
On Mar 14, 2013, we downgraded
Philadelphia-based crude oil pipelines and terminals operator
Sunoco Logistics Partners L.P. (SXL) to Neutral
from Outperform purely on valuation grounds, as we see limited near
term price upside. Our new investment thesis is supported by a
Zacks Rank #3 (Hold).
Why the Downgrade?
Tepid demand for refined products and the difficult operating
environment are key areas of concern, in our view. We also remain
worried on account of cost overruns on expansion projects, which
lead to lower returns.
Detailed Analysis
Recent results have been driven by strength in its crude pipeline
system and terminals facilities. Importantly, the partnership has
grown its cash distribution for 31 consecutive quarters. With its
stable fee-based revenue, geographically-diverse assets and strong
business fundamentals, Sunoco Logistics offers investors an
opportunity to capture income growth through steadily rising cash
distributions and capital appreciation.
However, the actual amount of cash distributed to Sunoco Logistics
unitholders may fluctuate and are directly exposed to the
partnership’s future operating performance, which is susceptible to
movements in margins and throughput volumes. Realized margins
and/or volumes could differ significantly from our estimates,
thereby affecting Sunoco Logistics’ cash distributions.
Moreover, weak refined products demand and refinery downtime –
which adversely affects pipeline and terminal throughput – may
present a risk to the cash flow estimates and lower Sunoco
Logistics’ distribution growth rate.
Stocks that Warrant a Look
While we expect Sunoco Logistics to perform in line with its peers
and industry levels in the coming months and advice investors to
wait for a better entry point before accumulating shares, one can
look at Calumet Specialty Products Partners L.P.
(CLMT), Lehigh Gas Partners L.P. (LGP) and
Marathon Petroleum Corp. (MPC) as good buying
opportunities. These oil refiners and marketers – sporting a Zacks
Rank #1 (Strong Buy) – have solid secular growth stories with
potential to rise significantly from current levels.
CALUMET SPECLTY (CLMT): Free Stock Analysis Report
LEHIGH GAS PTNR (LGP): Free Stock Analysis Report
MARATHON PETROL (MPC): Free Stock Analysis Report
SUNOCO LOGISTIC (SXL): Free Stock Analysis Report
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