Goldman Sachs Reiterates Sell Rating on Sunoco (SUN)
Goldman Sachs is out with an analyst note this morning, where they reiterated their Sell rating on shares of Sunoco Inc. (NYSE: SUN); they have a $30.00 price target on the stock.
GS analysts cited a recent analyst meeting with the company where the company announced its intention to separate its SunCoke business by 1H2011, in an effort to unlock what management perceives to be underappreciated value.
The analyst noted, “The meeting reinforced our favorable view of Sunoco’s relatively new CEO and CFO and their willingness to take dramatic restructuring measures in an attempt to improve the company’s outlook and boost shareholder value. We believe the previously announced decisions to close its Eagle Point (NJ) refinery, divest its polypropylene business, and take other cost reduction and restructuring steps were needed.”
“The recent decision to separate SunCoke,” Goldman believes, “is another step in the right direction.”
Despite the tough steps taken, the Goldman Sachs analyst reiterated, “Sunoco, at its core, remains heavily exposed to the East Coast refining and fuels market, which we view as the least favorable refining region in the United States given low-cost import pressure, a poor secular demand outlook, and stubbornly high levels of spare capacity. We remain concerned about the likelihood of medium-term refining cash burn—notwithstanding better 2Q2010 results—and hence value erosion of the company’s better positioned businesses.”
Given that and with the refining sector approaching its traditional seasonal margin peak, GS maintains a Sell rating on Sunoco shares relative to their
Neutral rating on refining names.
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