Sunoco LP SUN has witnessed upward earnings estimate revisions for 2021 in the past 60 days. The share price of the leading independent fuel distributor in the United States, currently sporting a Zacks Rank #1 (Strong Buy), has jumped 7.1% over the past six months compared with 0.6% growth of the composite stocks belonging to the industry.
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Factors Favoring the Stock
Sunoco is among the largest motor fuel distributors in the U.S. wholesale market in terms of volume. The partnership will continue to generate stable cash flows by distributing more than 10 fuel brands under its long-term distribution contracts, with about 10,000 convenience stores.
The partnership is expected to benefit from the recovering gasoline demand and rising diesel fuel consumption. Due to the rapid rollout of vaccinations across the country, higher fuel consumption and refining production in the domestic market will likely drive the demand for wholesale fuel distribution businesses. This, in turn, will boost the partnership’s profits.
Sunoco expects fuel volumes of 7.25-7.75 billion gallons for this year, indicating an increase from the 2020 reported level of 7.09 billion gallons. Also, it anticipates 2021 adjusted EBITDA of $725-$765 million, the mid-point of which is higher than the $739 million reported in 2020. Next year, the partnership expects fuel volumes of 7.7-8.1 billion gallons and adjusted EBITDA of $770-$810 million. Despite the pandemic-related uncertainty, Sunoco expects year-over-year continuous volume improvements.
The partnership is currently focusing on reducing costs and expenses, which are expected to benefit its bottom line. In 2020, the total cost of sales decreased to $10,293 million from $16,132 million in the year-ago period. The metric is expected to further decline in 2021. Significantly, the partnership has revised its projection downward for 2021 operating expenses to $425-$435 million from the previously mentioned $440-$450 million.
Thus, the Sunoco stock appears to be a solid bet now, based on the strong fundamentals and compelling business prospects.
Other Key Picks
Investors interested in the energy sector might also look at the following companies that also presently flaunt a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Canadian Natural Resources Limited CNQ is one of the largest independent energy companies in Canada. CNQ has a broad portfolio of low-risk exploration and development projects, with a strong international exposure that yields long-term volume growth at above-average rates. As of the end of 2020, CNQ had 12.106 billion oil-equivalent barrels (BOE) in its total proved reserves.
Canadian Natural Resources’ earnings for 2021 are expected to surge 1,085.4% year over year. CNQ currently has a Zacks Style Score of B for Growth. The company raised its dividend by 25% in November, reflecting strength in its cash flows. CNQ is counted as a ‘Canadian Dividend Aristocrat’ with an attractive yield. Furthermore, Canadian Natural Resources has a solid track record of dividend hikes, increasing its payout for 22 consecutive years.
PDC Energy PDCE is an independent upstream operator, which engages in the exploration, development and production of natural gas, crude oil and natural gas liquids. PDCE, which reached its present form following the January 2020 combination with SRC Energy, is currently the second-largest producer in the Denver-Julesburg Basin. As of 2020-end, PDC Energy’s total estimated proved reserves were 731,073 thousand barrels of oil equivalent.
PDC Energy’s earnings for 2021 are expected to surge 286.2% year over year. PDCE witnessed five upward revisions in the past 60 days. PDCE beat the Zacks Consensus Estimate in the last four quarters, with an earnings surprise of 51.06%, on average. As of Sep 30, 2021, PDC Energy had $1.7 billion in total liquidity, while its credit facility currently has a total borrowing base of $2.4 billion. Moreover, PDC Energy’s debt maturity profile is a favorable one.
Occidental Petroleum OXY, based in Houston, TX, is an integrated oil and gas company with significant exploration and production exposure. OXY is also a producer of a variety of basic chemicals, petrochemicals, polymers and specialty chemicals. As of 2020-end, Occidental’s preliminary worldwide proved reserves totaled 2.91 billion BOE compared with 3.9 billion BOE at the end of 2019.
Occidental Petroleum’s earnings for 2021 are expected to surge 155.8% year over year. OXY has also witnessed five upward revisions in the past 60 days. The company currently has a Zacks Style Score of A for Momentum and B for Growth. In the third quarter, OXY achieved the planned divestiture target of $10 billion by entering a deal to sell its interest in two offshore Ghana assets for $750 million.
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