On Thursday, Barclays (LON:BARC) reaffirmed its Overweight rating on Sunoco (NYSE: SUN), maintaining a $60.00 price target for the stock. The firm's projection for Sunoco's adjusted EBITDA in the third quarter of 2024 is now set at $472 million, an increase from the previously estimated $463 million and above the consensus of $450 million. This revision comes as a result of anticipated strong performance in the company's Fuel Distribution and Pipeline Systems segments, along with a favorable commodity environment.
Barclays expects the Fuel Distribution segment to report a gross margin of $340 million for the third quarter, attributing the positive outlook to consistent volumes and an improved cents per gallon (CPG) margin of approximately $0.12. The analyst notes that the segment benefited from declining wholesale gasoline prices for much of the quarter, which likely bolstered margins.
In the Pipeline Systems segment, Barclays forecasts a gross margin of $206 million. While refinery turnarounds and the timing of Minimum Volume Commitment (MVC) contract recognition may have some impact, the segment is expected to show results that include a full quarter of contributions from the Northern Star (NS) acquisition and the Permian joint venture equity.
For the Terminals segment, the firm projects a gross margin of $115 million. The analyst anticipates an increase in this figure, supported by an additional month of contributions from Northern Star. This segment is noted for its highly reliable nature, which is expected to contribute to the positive margin.
Barclays' analysis indicates that Sunoco's diversified operations and strategic acquisitions are poised to deliver solid financial results for the third quarter of 2024. The firm's maintained rating and price target reflect confidence in the company's performance amidst the current commodity market conditions.
In other recent news, Sunoco LP has announced robust Q2 2024 results, revealing an adjusted EBITDA of $400 million and a distributable cash flow of $295 million. These financial results follow significant strategic maneuvers by the company, including the sale of 204 convenience stores to 7-11 for $1 billion and the acquisition of NuStar Energy for $7.3 billion. Sunoco LP also formed a joint venture with Energy Transfer (NYSE:ET) and acquired a refined product terminal in Portland, Maine.
Stifel has maintained a Buy rating on Sunoco shares and increased the price target to $64, reflecting the company's strong quarterly results. The firm's decision is based on the potential benefits of the joint venture and the opportunities arising from the integration of NuStar. Stifel has also rolled out its 2025 estimates for Sunoco, signaling confidence in the company's long-term prospects.
Sunoco LP issued $1.5 billion in senior unsecured notes, reducing interest expenses by $60 million annually. The company announced an $87.56 per unit distribution and expects 2024 adjusted EBITDA to be between $1.46 billion and $1.52 billion. The synergy expectations from the NuStar acquisition have been increased to $200 million annually. These are the recent developments in the company.
InvestingPro Insights
Adding to Barclays' positive outlook on Sunoco (NYSE: SUN), recent data from InvestingPro provides further context to the company's financial position and market performance. Sunoco's market capitalization stands at $7.24 billion, reflecting its significant presence in the energy distribution sector. The company's P/E ratio of 6.33 suggests that it may be undervalued relative to its earnings, which aligns with Barclays' Overweight rating.
InvestingPro Tips highlight Sunoco's strong dividend profile, with a current dividend yield of 6.58% and a dividend growth rate of 3.99% over the last twelve months as of Q2 2024. This robust dividend performance could be particularly attractive to income-focused investors, especially given the company's expected strong performance in its various segments.
The company's revenue for the last twelve months as of Q2 2024 reached $23.63 billion, with a quarterly revenue growth of 7.47% in Q2 2024. This growth trend supports Barclays' optimistic projections for Sunoco's adjusted EBITDA in the coming quarter.
For investors seeking a deeper understanding of Sunoco's financial health and growth prospects, InvestingPro offers additional tips and metrics. The platform currently lists 13 more tips for SUN, providing a comprehensive analysis to inform investment decisions.
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