Sunoco LP (NYSE: $SUN) is a leading independent fuel distributor in the US that provides motor fuel to independent dealers, convenience stores, commercial buyers, and distributors in over 33 states and growing.
Sunoco LP recently announced that it had concluded two significant transactions to enhance its strategic position and optimize its portfolio. On April 17, 2024, the company announced the completion of the acquisition of liquid fuel terminals from Zenith Energy while simultaneously divesting 204 convenience stores to 7-Eleven, Inc. These moves mark SUN’s proactive efforts to strengthen its market presence and drive value for its stakeholders.
Acquisition of Zenith Energy Terminals
On March 13, 2024, SUN finalized the acquisition of Zenith Energy Netherlands Amsterdam B.V., securing one hundred percent of its equity interest for €170 million. This strategic acquisition includes the Amsterdam terminal located within the Port of Amsterdam. The port is a crucial nexus for global energy trading and is vital to Europe’s energy market dynamics.
Additionally, SUN acquired the Bantry Bay terminal, a premier independent bulk liquids storage facility in Ireland. This acquisition bolsters SUN’s presence in Europe and fosters supply chain efficiencies for its U.S. East Coast operations. The move underscores SUN’s commitment to enhancing midstream income and reinforcing its foothold in key markets.
Divestiture of Convenience Stores
In a separate transaction, Sunoco LP has also completed the divestiture of 204 convenience stores in West Texas, New Mexico, and Oklahoma to 7-Eleven, Inc. for approximately $1.0 billion. This transaction demonstrates Sunoco’s ability to optimize its portfolio while positioning the balance sheet for material growth.
As part of the sale, Sunoco amended its existing take-or-pay fuel supply agreement with 7-Eleven, Inc. to incorporate additional fuel gross profit, further strengthening the partnership.
Sunoco: Growth Through Strategic Transactions
The acquisition and divestiture transactions were completed at highly attractive multiples and immediately accretive to Sunoco’s unitholders on key metrics. These strategic moves align with Sunoco’s ongoing efforts to enhance its operational efficiency, strengthen its financial position, and position the company for future growth.
Sunoco LP’s Fiscal Year 2023 Performance
In Q4, Sunoco LP exceeded revenue expectations with $5.64 billion, surpassing the consensus estimate of $5.61 billion. However, the company reported a net loss of $106 million compared to a net income of $55 million in Q4 2022. It resulted in a loss of $1.50 per unit, missing the anticipated earnings of $1.01.
Adjusted EBITDA for Q4 2023 slightly decreased to $236 million from $238 million in Q4 2022. Adjusted distributable cash flow fell to $148 million from $153 million in the same period last year. Sunoco LP allocated $83 million for total capital expenditures in Q4, with $50 million for growth capital and $33 million for maintenance capital.
For 2023, Sunoco reported a net income of $394 million, down from $475 million in 2022. Adjusted EBITDA increased by 5% to $964 million compared to $919 million in 2022. Adjusted distributable cash flow rose to $664 million from $650 million in the previous year. Growth capital expenditures for 2023 were $145 million, with maintenance capital expenditures at $70 million.
As of December 31, 2023, Sunoco held $29 million in cash and cash equivalents and had a net long-term debt of $3.6 billion.
Sunoco’s Anticipated EBITDA Growth Projection
In 2024, the company anticipates adjusted EBITDA to fall within $975 million to $1 billion, signaling growth from the $964 million recorded in 2023. Sunoco is scheduled to announce its financial and operational outcomes for the first quarter of fiscal 2024 before the market commences on Wednesday, May 8, 2024.
SUN Stock Update
As of Wednesday’s trading session, Sunoco LP (SUN) is priced at $53.88, showing a 5.38% increase from its previous close of $51.13. This uptick follows the news regarding the successful completion of the acquisition of European Liquid Fuels Terminals and the divestiture of West Texas Assets.
Over the past year, SUN has experienced a change of 13.85%, while the S&P 500 has seen a 52-week change of 21.59%. SUN’s 52-week high is $64.89, and its low is $41.95.
Currently, SUN is trading below its 50-day moving average of 60.33 and close to its 200-day moving average of 53.11. Over the past 10 days, the average volume has been 455.42k shares, with a total of 84.43 million shares outstanding, resulting in a market capitalization of $4.32 billion.
Analysts: SUN Stock Signals Moderate Growth
Wall Street analysts have given the stock an overall Moderate Buy recommendation for SUN Stock. Their consensus predicts an average price target of $62.00, ranging from a high forecast of $65.00 to a low estimate of $60.00. This average target implies a 15.39% change from the current price of $53.73.
Currently, the stock has a P/E ratio of 14.75. Over the past year, SUN’s Forward P/E has fluctuated between a high of 16.32 and a low of 9.34, suggesting that Sunoco may be undervalued.
Should You Buy SUN Stock?
Sunoco LP (SUN) has strategically positioned itself for growth and optimization through two significant transactions. The acquisition of liquid fuel terminals from Zenith Energy enhances SUN’s midstream capabilities, while the divestiture of convenience stores streamlines its focus on core fuel distribution and marketing. These moves underscore SUN’s commitment to creating value for stakeholders.
Despite recent financial challenges, SUN anticipates EBITDA growth in 2024, signaling resilience and potential. Analysts remain cautiously optimistic, projecting moderate growth and suggesting SUN may be undervalued, offering potential for investors.
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