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Buoyed by a robust operating performance and favorable growth prospects, we are upgrading crude oil pipelines and terminals operator Sunoco Logistics Partners L.P. (SXL - Analyst Report) to Outperform from Neutral.

Philadelphia-based Sunoco Logistics, a master limited partnership (MLP), acquires, owns, and operates a geographically diverse portfolio of refined product and crude oil pipelines and terminal facilities. Its facilities are located in 17 states in the Northeast, the Midwest, the Southeast and the Southwest of the country.

Oil refiner and marketer Sunoco Inc. owns 34% of the partnership interest, including a 2% general partner interest. Sunoco Logistics is organized into three segments – Refined Products Pipeline System, Terminal Facilities, and the Crude Oil Pipeline System.

Recent results for Sunoco Logistics have been driven by strength in its crude pipeline system and terminals facilities. The partnership’s second quarter diluted earnings per unit came in at $2.40, significantly ahead of the Zacks Consensus Estimate of $1.31 and the year-ago period profit of $1.29. Revenues of $2,428.0 million were up 19.1% from the second quarter 2010 and also beat our projection by 12.0%.

Importantly, the partnership has grown its cash distribution for twenty-five consecutive quarters. Its current quarterly distribution of $1.215 per unit ($4.86 per unit annualized) is up from 45 cents per unit ($1.80 per unit annualized) at the time of its 2002 IPO.

With its stable fee-based revenue, geographically-diverse assets and strong business fundamentals, Sunoco Logistics offers investors an opportunity to capture income growth through steadily-rising cash distributions and capital appreciation.

We also believe that the partnership’s synergistic relationship with Sunoco Inc. is beneficial on two accounts. First, a sound fee-based relationship with Sunoco shields it from competitive pressures in the MLP space and provides it with stable cash flows and consistent top-line growth opportunities. Second, the partnership continues to leverage its relationship with Sunoco to make joint acquisitions.

As such, we believe Sunoco Logistics is well positioned going forward and view it as an attractive investment. Our long-term Outperform recommendation is supported by a Zacks #2 Rank (short-term Buy rating).

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