Sunoco (SUN) Inks Deal To Boost Fuel Distribution Business

Sunoco LP (NYSE:SUN) recently inked a deal with Superior Plus Corporation to acquire its wholesale fuel business and storage assets, in a bid to further bolster its fuel distribution segment.

The assets to be sold to Sunoco will include wholesale refined fuels operations across five states in the northeast United States along with three pipeline connected terminals in New York. The wholesale business comprises around hundreds of dealers and commercial contracts, with an annual sale of nearly 200 million gallons of fuel. The three terminals include 17 tanks with a storage capacity of 429,000 barrels.

The deal is valued at approximately $40 million. Subject to satisfactory closing conditions and regulatory approvals, the deal is set for completion by this month.

The announcement of this acquisition deal comes a day after the partnership effectively completed the conversion of its 207 retail sites across West Texas, Oklahoma and New Mexico markets to a single commission agent. Per the commission agent model, Sunoco will own and price the fuel at the sites, paying the agent a fixed commission per gallon of fuel sold. Meanwhile, the master limited partnership will receive fees and rental income from the commission agent, who will be responsible for conducting operations in the sites.

Prior to this in January 2018, Sunoco had closed its $3.2 billion divestment deal with 7-Eleven Inc., aiming to exit from retail operations and strengthen its focus in the core fuel distribution and logistics segments.

Thus, with the successful completion of its divestment deal with 7-Eleven and conversion of its remaining retail business to a commission agent model, the partnership has made a strategic change in its business model that has helped it in strengthening its financial position. The strategic initiatives have helped the partnership to reduce its debt metrics and become better positioned to tap on attractive acquisition opportunities in the near term.

The recent acquisition deal is likely to be immediately accretive to Sunoco’s distributable cash flows, and bring about increased synergies and scale.

The partnership remains focused on more such lucrative acquisition opportunities for the growth of its wholesale fuel distribution business, which will enable it to have an edge over other regional wholesalers and distributors.

Zacks Rank and Key Picks

Sunoco carries a Zacks Rank #5 (Strong Sell). Over the past six months, shares of Sunoco have declined more than 18%, wider than its industry’s loss of 12.65%.

With the Oil and Gas Refining & Marketing Industry ranked at the bottom 5% (252 out of 265), it does not come as a surprise that none of the companies from this industry is set to outperform in the near term, according to the Zacks Model.

Meanwhile, one can consider a few better-ranked players in the broader energy space like Concho Resources Inc. (NYSE:CXO) , Pioneer Natural Resources Company (NYSE:PXD) and Continental Resources, Inc (NYSE:CLR) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Concho topped earnings estimates in each of the preceding four quarters, with an average of 48.89%.

Pioneer Natural surpassed earnings estimates in each of the last four quarters, with an average of 66.92%.

Continental Resources delivered an average positive earnings surprise of 64.93% in the trailing four quarters.

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