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Sunoco LP (SUN) Up 9.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Sunoco LP (SUN - Free Report) . Shares have added about 9.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sunoco LP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Sunoco Beats Q3 Earnings & Revenues Estimates

Sunoco LP reported third-quarter 2020 earnings of 96 cents per unit, beating the Zacks Consensus Estimate of 84 cents. The bottom line also improved from 57 cents in the year-ago quarter.  The strong quarterly earnings were aided by higher contributions from fuel distribution and marketing business.

Quarterly revenues of the partnership totaled $2,805 million, beating the Zacks Consensus Estimate of $2,799 million. However, the figure declined from $4,331 million in the prior-year quarter.

Segmental Performance

The partnership reports financial statements through two reportable segments — Fuel Distribution and Marketing, and All Other.

Fuel Distribution and Marketing: Total gross profit from the segment increased to $265 million from $236 million in the comparable period of 2019, primarily due to higher motor fuel sales.

All Other: This unit reported gross profit of $43 million compared with $56 million in the comparable period of 2019. The year-over-year decline can be attributed to lower non-motor fuel sales and motor fuel sales.

In terms of volumes, the partnership sold 1.9 billion gallons of fuel in the reported quarter, down 12.1% year over year owing to the coronavirus pandemic. Notably, motor fuel gross profit per gallon was recorded at 12.1 cents in the quarter, higher than the year-ago level of 11.6 cents.

Distribution

For the quarter ended Sep 30, 2020, Sunoco declared a quarterly cash distribution of 82.55 cents per unit or $3.3020 on an annualized basis. Markedly, this distribution was flat on a sequential basis.

Adjusted distributable cash flow was $139 million in the third quarter, suggesting an improvement from the year-ago quarter’s $133 million.

Expenses & Capital Expenditure

Total cost of sales and operating expenses in the reported quarter decreased to $2,658 million from $4,214 million a year ago.

The partnership incurred gross capital expenditure of $20 million in the quarter under review, comprising $14 million in growth capital and $6 million of maintenance capital.

Balance Sheet

As of Sep 30, 2020, Sunoco had cash and cash equivalents of $63 million. At third quarter-end, it had net long-term debt of $2,877 million, representing a debt to capitalization ratio of 0.82.

Outlook

For 2020, the partnership projects adjusted EBITDA for 2020 at or more than $740 million. The company’s expectation for 2020 growth capital spending was a minimum of $75 million. Moreover, the company projects 2020 operating expenses in the band of $460 to $475 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.43% due to these changes.

VGM Scores

Currently, Sunoco LP has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sunoco LP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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