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Is Sunoco (SUN) Stock a Smart Buy Before Q2 Earnings Release?
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Sunoco LP (SUN - Free Report) is set to report second-quarter 2024 results on Aug 7, 2024, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.79 per share, implying a surge of almost 130% from the year-ago reported number. The estimate was revised downward by one analyst in the past 30 days against no upward movement. The Zacks Consensus Estimate for quarterly revenues is currently pegged at $5.5 billion, suggesting a 4.4% decline from the year-ago reported number.
Image Source: Zacks Investment Research
SUN beat the consensus estimate for earnings in one of the trailing four quarters, missed twice and met once, with the average negative surprise being 27%. This is depicted in the graph below:
Our proven model predicts an earnings beat for SUN this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That is the case here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Q2 Results
In North America, Sunoco is among the leading independent fuel distributors. The master limited partnership delivers more than 8.5 billion gallons each year in over 40 U.S. states and the Caribbean. Thus, given its huge scale of operations, SUN is likely to have generated stable cash flows in the June quarter.
The partnership also has a vast network of pipeline assets, spreading across roughly 10,000 miles, transporting oil, refined products and ammonia to the terminals. The pipeline business is also likely to have generated stable earnings. By acquiring NuStar Energy LP, SUN is expected to have benefited from vertical integration.
Our model predicts adjusted EBITDA from the fuel distribution and marketing business to increase 60.7% year over year in the June quarter.
Price Performance & Valuation
SUN's stock has jumped 24.1% over the past year compared with the energy sector’s growth of 2.5%. Another prominent operator of midstream assets, Western Midstream Partners LP (WES - Free Report) , has surged 47.2% over the same time frame.
One-Year Price Chart
Image Source: Zacks Investment Research
On the valuation front, SUN appears relatively overvalued. The partnership's current trailing 12-month enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) ratio is 10.78, which is trading at a premium compared to the energy sector average of 3.03.
Image Source: Zacks Investment Research
Investment Thesis
A "take-or-pay" contract, frequently utilized in the energy sector by entities such as Sunoco, mandates that the buyer commits to purchasing a minimum quantity of a product (such as fuel) from Sunoco within a designated timeframe. Should the buyer fail to meet this minimum, they are still obligated to make the payment, indicating the partnership’s stable business model.
Demonstrating its commitment to strategic growth, last month, Sunoco entered into a joint venture (JV) with Energy Transfer LP (ET - Free Report) to consolidate their crude oil and produced water-gathering assets in the Permian, the most prolific basin in the United States. The JV, effective as of Jul 1, 2024, will immediately enhance the distributable cash flow per unit. This development is coupled with SUN’s stable business model and predictable fee-based cash flows, which suggests a promising outlook for the master limited partnership.
The lucrative NuStar Energy acquisition is also worth mentioning. On May 3, Sunoco completed the $7.3 billion buyout of NuStar Energy. With the acquisition of the leading independent liquids terminal and pipeline operator, SUN has diversified its operations and enhanced its credit profile.
Last Word
Considering the above factors, it would be prudent for investors to buy the stock. Though the partnership is currently relatively overvalued, unitholders are willing to pay a premium price for the stock.
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Is Sunoco (SUN) Stock a Smart Buy Before Q2 Earnings Release?
Sunoco LP (SUN - Free Report) is set to report second-quarter 2024 results on Aug 7, 2024, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.79 per share, implying a surge of almost 130% from the year-ago reported number. The estimate was revised downward by one analyst in the past 30 days against no upward movement. The Zacks Consensus Estimate for quarterly revenues is currently pegged at $5.5 billion, suggesting a 4.4% decline from the year-ago reported number.
SUN beat the consensus estimate for earnings in one of the trailing four quarters, missed twice and met once, with the average negative surprise being 27%. This is depicted in the graph below:
Sunoco LP Price and EPS Surprise
Sunoco LP price-eps-surprise | Sunoco LP Quote
Q2 Earnings Whispers
Our proven model predicts an earnings beat for SUN this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That is the case here.
The leading energy infrastructure and fuel distributor has an Earnings ESP of +1.96% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Q2 Results
In North America, Sunoco is among the leading independent fuel distributors. The master limited partnership delivers more than 8.5 billion gallons each year in over 40 U.S. states and the Caribbean. Thus, given its huge scale of operations, SUN is likely to have generated stable cash flows in the June quarter.
The partnership also has a vast network of pipeline assets, spreading across roughly 10,000 miles, transporting oil, refined products and ammonia to the terminals. The pipeline business is also likely to have generated stable earnings. By acquiring NuStar Energy LP, SUN is expected to have benefited from vertical integration.
Our model predicts adjusted EBITDA from the fuel distribution and marketing business to increase 60.7% year over year in the June quarter.
Price Performance & Valuation
SUN's stock has jumped 24.1% over the past year compared with the energy sector’s growth of 2.5%. Another prominent operator of midstream assets, Western Midstream Partners LP (WES - Free Report) , has surged 47.2% over the same time frame.
One-Year Price Chart
On the valuation front, SUN appears relatively overvalued. The partnership's current trailing 12-month enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) ratio is 10.78, which is trading at a premium compared to the energy sector average of 3.03.
Investment Thesis
A "take-or-pay" contract, frequently utilized in the energy sector by entities such as Sunoco, mandates that the buyer commits to purchasing a minimum quantity of a product (such as fuel) from Sunoco within a designated timeframe. Should the buyer fail to meet this minimum, they are still obligated to make the payment, indicating the partnership’s stable business model.
Demonstrating its commitment to strategic growth, last month, Sunoco entered into a joint venture (JV) with Energy Transfer LP (ET - Free Report) to consolidate their crude oil and produced water-gathering assets in the Permian, the most prolific basin in the United States. The JV, effective as of Jul 1, 2024, will immediately enhance the distributable cash flow per unit. This development is coupled with SUN’s stable business model and predictable fee-based cash flows, which suggests a promising outlook for the master limited partnership.
The lucrative NuStar Energy acquisition is also worth mentioning. On May 3, Sunoco completed the $7.3 billion buyout of NuStar Energy. With the acquisition of the leading independent liquids terminal and pipeline operator, SUN has diversified its operations and enhanced its credit profile.
Last Word
Considering the above factors, it would be prudent for investors to buy the stock. Though the partnership is currently relatively overvalued, unitholders are willing to pay a premium price for the stock.