Sunoco To Feel Increased Pressure On Its Margins, Barclays Says

Barclays said Sunoco LP SUN will likely feel increased pressure on margins as its fuel margins are directly impacted by the price of crude. Furthermore, leverage is expected to remain elevated through 2017.

For the first quarter, leverage reached 5.4x compared to 4.1x the fourth quarter of 2015.

"Our analysis shows a hypothetical ~15 percent decrease in the average price per gallon could lead to a ~$80 million decrease to EBITDA (or 11 percent below our base case). This scenario would also result in leverage increasing to ~6.0x (vs 6.25x limit) and ~0.9x coverage, assuming no equity issuance," analyst Heejung (Helen) Ryoo wrote in a note.

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"To account for potential margin pressure and equity issuance needed to de-lever the balance sheet, our model shows 2 percent distribution growth next quarter, but leaves distributions flat going forward," according to Ryoo.

For the full year, the analyst slashed EPS estimate to $2.40 from $2.92.

Ryoo, who has an Equal Weight rating on the stock, also cut the price target to $32 from $37, based on a 12-month distribution run-rate of $3.33 and a higher target yield of 10.5 percent.

At time of writing, Sunoco was down 1.94 percent on the day, trading at $28.75.