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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	12/13/2007 8:48:58 AM
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Sunoco, Inc. (SUN ) Reiterate Conviction Buy following analyst meeting - Goldman Sachs - December 13, 2007 News Sunoco hosted its annual analyst meeting in Philadelphia on December 12, 2007. The meeting reinforced our view that its shares are substantially undervalued on both a sum-of-the-parts (SOP) basis and relative to refining- and energy-sector peers. Analysis Key positive takeaways from the meeting include: (1) greater confidence in the value of non-refining businesses; (2) confirmation that management is looking to better highlight the value of its non-refining assets and will ultimately do what is best for shareholders; and (3) continued capital discipline and willingness to repurchase shares with excess funds. The fact that Sunoco did not reveal a definitive time frame for “realizing value” in its non-refining businesses did not surprise us, though we suspect will cause some to grumble that its share price will remain at a discount to its SOP valuation until more definitive steps are actually taken. Implications Our investment thesis on Sunoco remains that the market is not fully valuing its non-refining businesses and that investors are too pessimistic on the outlook for refining margins, the combination of which we think make Sunoco’s shares appear very inexpensive. Key catalysts for its shares include: (1) anticipation of an expected recovery in refining margins in 2008 from current seasonally weak levels; (2) greater clarity on the best corporate structure for its coal & coke business; and (3) strategic action in chemicals that would give the market greater confidence in the value of those assets. There is no change to our $85, 12-month target price for Sunoco nor our $115 “high end” trading value. Our target price is based on asset value, P/E and cash flow valuation analyses, with the key risk being sustained lower commodity prices. Our potential “high-end” trading value reflects greater market recognition of its non-refining businesses. Our 2007-2012 EPS estimates are unchanged.

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