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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	8/10/2007 1:25:49 PM
	of 29

Restructuring, recapitalization, and refining-driven upside potential - Goldman Sachs - August 10, 2007 Source of opportunity We believe investors should be adding to Sunoco shares following its sharp sell-off over the past few weeks on both an absolute basis and versus other energy equities. We recently added Sunoco's shares to the Americas Buy List. We see Sunoco as benefiting from our bullish refining outlook over the next few years in addition to having restructuring and recapitalization potential. We see 51% potential upside (inc. dividend yield) to our $95, 12-month target price, with 98% upside potential to a $125 high-end trading value. Catalyst Key catalysts for Sunoco shares include: (1) a near-term rebound in refining margins following the sharp correction seen since July 10; (2) greater Street confidence in a bullish 2008 outlook for the refining sector; (3) greater recognition by management or investors that some, or all, of Sunoco's non-refining businesses may have greater value if not owned by Sunoco; and (4) use of proceeds from any potential divestiture of non-refining businesses to repurchase shares. Valuation We see 51% upside potential to our $95, 12-month target price for Sunoco, which is based on asset value, P/E and cash flow valuation analyses. If our bullish refining outlook materializes and Sunoco delivers on the full extent of the restructuring and recapitalization steps we highlight, we believe further upside to a $125 high-end trading value could exist. Key risks The key risk to Sunoco shares would be a sustained decline in the benchmark Gulf Coast 3:2:1 (WTI) refining margins to less than $8/bbl.

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