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Sunoco, Inc. (SUN)

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A weak business model, geographically undiversified asset base and operational hindrances compel us to downgrade Sunoco, Inc. (SUN) to Underperform from Neutral. Our pessimistic outlook on the stock is fueled by the company's poorly performing refining and supply segment, which registered a high loss along with lower realized prices and throughputs in the fourth quarter of 2011.

Moreover, with the separation of the coke manufacturing business, Sunoco exhibits a weak business profile and remains susceptible to competitive risks. As such, we expect Sunoco to perform below the industry, which gives investors little reason to hold the stock.

We render a pessimistic outlook on the stock in the coming quarters, which is the main reason for our downgrade of the rating. Our $36 price objective reflects a multiple of 6.2X the trailing twelve-month cash flow.

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