On Sep 3, Zacks Investment Research upgraded energy pipelines and terminals operator, Sunoco Logistics Partners LP (SXL), to a Zacks Rank #2 (Buy).
Why the Upgrade?
The operating environment and growth prospects seem encouraging for Sunoco, as reflected by the strong second-quarter 2013 results. In fact, Sunoco has delivered positive earnings surprises in each of the last nine quarters with an average beat of 42.6%.
Sunoco reported second-quarter results on Aug 7, 2013. Earnings per unit came in at $1.08 surpassing the Zacks Consensus Estimate of 88 cents by 22.7%. The beat was on the back of robust performance at the new crude pipeline projects and sound market conditions. Moreover, the partnership was able to reduce its year over year operating expenses by 7.4% to $25.0 million.
With low-risk and stable cash flow-generating energy infrastructure assets, Sunoco offers investors an opportunity to capture income growth through steadily-rising cash distributions. This is reflected in its current improved quarterly distribution of 60 cents per unit ($2.40 per unit annualized), signifying a hike of 5% sequentially and 28% year over year. The present boost represents the thirty-third consecutive quarterly distribution increase.
Additionally, we like Sunoco’s recent acquisition of Texon L.P.’s butane blending business. The fundamental outlook for butane blending looks positive and we expect the business to offer organic growth opportunities, in addition to complementing the existing terminals business.
Lastly, we also appreciate Sunoco’s strong balance sheet, reflected by the partnership’s debt-to-capitalization ratio of approximately 26.8% in the second quarter of 2013.
Owing to these positive developments, the tendency for an upward estimate revision has been obvious in recent times. In fact, the Zacks Consensus Estimate for the third quarter has increased by 9.9% to 89 cents per unit, as more than half of the estimates (5 out of 8 estimates) were revised higher over the last 30 days. Additionally, for 2013, all the estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 13.6% to $3.92 per unit.
Other Stocks to Consider
Apart from Sunoco, one can consider oil and gas production pipeline master limited partnerships (MLP) like Magellan Midstream Partners LP (MMP), Delek Logistics Partners LP (DKL) and Pioneer Southwest Energy Partners LP (PSE) that offer value. Magellan Midstream sports a Zacks Rank #1 (Strong Buy), while Delek Logistics and Pioneer Southwest Energy retain a Zacks Rank #2 (Buy).
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