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The Zacks Analyst Blog Sunoco, Western Midstream Partners and Energy Transfer
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For Immediate Releases
Chicago, IL – August 7, 2024 – Zacks.com announces the list of stocks and ETF featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Sunoco LP (SUN - Free Report) , Western Midstream Partners LP (WES - Free Report) and Energy Transfer LP (ET - Free Report) .
Here are highlights from Wednesday’s Analyst Blog:
Is Sunoco (SUN - Free Report) Stock a Smart Buy Before Q2 Earnings Release?
Sunoco LP 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:
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.
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, has surged 47.2% over the same time frame.
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 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.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Sunoco, Western Midstream Partners and Energy Transfer
For Immediate Releases
Chicago, IL – August 7, 2024 – Zacks.com announces the list of stocks and ETF featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Sunoco LP (SUN - Free Report) , Western Midstream Partners LP (WES - Free Report) and Energy Transfer LP (ET - Free Report) .
Here are highlights from Wednesday’s Analyst Blog:
Is Sunoco (SUN - Free Report) Stock a Smart Buy Before Q2 Earnings Release?
Sunoco LP 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:
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, has surged 47.2% over the same time frame.
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 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.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.