On Tuesday, Sunoco (NYSE:SUN) shares experienced a shift in market sentiment as Citi adjusted its stance on the energy company's shares. The firm downgraded the stock from Buy to Neutral, setting a price target of $65.00.
The shift in rating comes after Sunoco shares gained 6% compared to the Alerian MLP Index (AMZ) following the announcement of its acquisition of NuStar Energy (NS).
Citi had previously upgraded Sunoco to Buy with the expectation that the company would surpass its accretion target and achieve the guided synergy levels from the NuStar deal. Although these outcomes are still anticipated, Sunoco's recent stock performance has narrowed the valuation gap that was present post-announcement.
The market has largely recognized the accretion and synergy benefits, with the main concern being the potential dilution from incentive distribution rights (IDRs).
With the NuStar transaction still pending and without significant new data, Citi sees the risk-reward balance for Sunoco as now more even. The firm notes that at 8.1 times projected 2026 EBITDA, Sunoco's valuation aligns with that of diversified peers, reflecting the value creation and transformative impact of the deal.
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