Sunoco - SUN - The Best Oil Company Message Board

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Gold/Mining/Energy : Sunoco - SUN - The Best Oil Company

SUN 52.41

-0.2%

Dec 31 3:59 PM EST

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From: Dennis Roth	5/7/2007 11:24:38 AM
	of 29

Sunoco, Inc. (SUN): Shares look undervalued, but we prefer VLO, MRO, and FTO Goldman Sachs What's changed Sunoco reported 1Q2007 EPS of $0.70, below the $1.40 First Call consensus and our $1.60 forecast. The primary reason for the shortfall was lower-than-expected refining earnings. Given the extensive downtime in its large Northeast refining system, we do not view the variance versus expectations as a material issue. We have updated our 2007 EPS estimates as follows: $3.09 ($3.31 before) for 2Q, $3.22 ($3.15) for 3Q, $1.88 ($1.86) for 4Q, and $8.85 ($9.92) for full-year 2007. Implications Our unchanged 2008E and 2009E EPS for Sunoco are a respective 43% and 77% above consensus for 2008 and 2009. This is despite using what we think could prove to be a conservative Gulf Coast 3:2:1 (WTI) refining margin assumption of $10/bbl for both 2008 and 2009. Valuation Our revised $92 ($86 before) 12-month price target corresponds to 8.5X P/E (8.0X before) our $10.80 2008E EPS. Since 2004, Sunoco has traded at 7.5X-13.5X forward consensus EPS. Our Neutral view reflects a slightly less favorable view of East Coast refining margins relative to other areas of the country. We also see Sunoco as more of a sum-of-the-parts investment without clear catalysts for value recognition of its nonrefining segments. Key risks Key risk is lower refining margins. Impact on related securities For the refiners, we see our Attractive coverage view as more important than the relative stock call within the group. We think strong refining margins will persist through at least 2009 owing to Middle East newbuild project delays, seemingly year-round 'unplanned' refinery downtime, and resilient oil demand. Valero and Marathon (both Buy) are our top picks.

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