UBS Downgrades Sunoco (SUN) to Neutral

UBS analyst Shneur Gershuni downgraded Sunoco (NYSE: SUN) from Buy to Neutral with a price target of $39.00 (from $36.00).

The analyst comments "Given SUN's current trading levels, we believe its valuation is reflective of a return to PreCovid demand and a higher normalized margin, hence we are stepping to the sidelines and downgrading SUN to Neutral from Buy. Based on UBS Evidence Lab data, US relative congestion continued to rise in 2021 with a 2Q average of 81% vs. 65% in 1Q. We believe congestion will continue to increase during the 3Q driving season, however we believe SUN's current trading levels reflect a return to normal demand in 2022. Further we see headwinds to margins vs. 2020 levels as RBOB has increased ~60% this year, and while we note volatility is key, we believe margins will likely shake out in the $0.10- $0.11/gal range in 2022 vs. 2021's guide of $0.11-$0.12 as we expect a return to historical demand levels. Where we could be wrong is on CPG longer term; however, as noted, we are modeling CPG margins above pre-Covid levels ($0.095-$0.105/gal guide in 2019) for ’22 and in the near term see headwinds due to RBOBs rise (see sensitives in next bullet). Given our estimated volume and CPG levels, we estimate a $39 price target for SUN, which equates to a roughly 8.4x EV/'22 EBITDA multiple and while that may seem low, we note SUN still has an IDR structure, when adjusting our multiple for SUN's EBITDA its ~10.5x which sits above the Midstream average for our coverage."

For an analyst ratings summary and ratings history on Sunoco click here. For more ratings news on Sunoco click here.

Shares of Sunoco closed at $36.35 yesterday.

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