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Following the proposed acquisition of downstream operator Sunoco Inc. by natural gas pipeline operator Energy Transfer Partners L.P. (ETP - Analyst Report), we have upgraded the former’s shares to Neutral from Underperform. We believe that through the $5.3 billion transaction – which provides an attractive premium to Sunoco shareholders – the company has been able to extract maximum value from its remaining assets.

(Read our full coverage on Energy Transfer’s planned acquisition of Sunoco: Energy Transfer to Acquire Sunoco)

Sunoco was already in the advanced stages of its rationalization program with plans to get rid of its East Coast-based facilities – that have been performing poorly during the last few years – after spinning-off its coke segment and selling its chemical unit. The Philadelphia and Marcus Hook refineries’ profitability have been hampered by higher crude prices, while their Mid-Continent competitors continue to benefit from the lower oil prices caused by the crude glut in Cushing.

We remain positive on the outlook for the new Sunoco – without refining – as it holds the promise of unlocking significant value from its non-refining businesses. We are also bullish on Sunoco’s retail marketing segment, which gives superior return and has attractive growth prospects.

With a favorable view of Sunoco’s efforts to exit its refining business and the company’s impending merger with Energy Transfer Partners, we believe investors will now be more confident in holding Sunoco shares.

Philadelphia, Pennsylvania-based Sunoco is a leading independent refiner and marketer of petroleum products. The company also has interests in logistics facilities. Its operations include two refineries (Philadelphia and Marcus Hook) having a combined capacity of 505,000 barrels per day. Sunoco’s retail marketing operations include approximately 4,900 retail sites in 24 states, primarily in the East Coast and Midwest regions of the country.

Sunoco is also the General Partner and has a 34% interest in Sunoco Logistics Partners L.P. (SXL - Analyst Report), a master limited partnership that operates Sunoco’s substantial refined product and crude oil pipeline and terminal assets.

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