Back to top

Analyst Blog


We are downgrading Sunoco Inc. shares to Underperform from Neutral, reflecting the bearish refining margin outlook. 

Weak demand for refined products in the global downturn and increased capacity has squeezed margins throughout the industry. Rising crude oil prices have added to Sunoco’s miseries by increasing the cost of production. With utilization rates remaining at historically low levels, we see a fairly unfavorable macro backdrop for independent refiners over the coming 6 - 12 months. Sunoco’s lack of geographic diversification and refining flexibility has also become a major liability, in our view. 

Sunoco has announced certain strategic actions to improve the company’s performance and competitiveness in a cost-effective manner. These include the closure of the previously-idled Eagle Point (New Jersey) refinery, a definitive agreement to sell the polypropylene business and cutting its dividend. Early last year, the company sold its Tulsa refinery and Retail Home Heating Oil business. 

These liquidity enhancements (expected to save more than $300 annually) will ensure Sunoco’s survival during the downturn, but until there is a more visible refining margin improvement trend, we little reason for investors to own the stock. As has been the case during the last few quarters, non-refining profits are likely to be dwarfed by losses in the main (refining) business. 

Given these headwinds, we expect Sunoco shares to be under pressure in the near future. Philadelphia, Pennsylvania-based Sunoco is a leading independent refiner and marketer of petroleum products. The company is also a major chemicals manufacturer and has interests in logistics and cokemaking facilities. Its operations include three refineries having a combined capacity of 675,000 barrels per day.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UTD THERAPE… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%