Sunoco's Newest Acquisition Could Be A Good Deal After All

Baird Equity Research believes
Sunoco LPSUN
's new acquisition of Transmix for $179 million could be a good deal. The brokerage said that although it looked like the transaction was pricey, a deeper analysis suggested the deal is positive based on the execution of 7xEBITDA multiple. The brokerage also reiterated its Outperform rating with $43 as the price objective of the company's shares.

Baird analysts led by Ethan Bellamy said, "Expect Transmix EBITDA rebound. SUN's acquisition of this already-public asset from an ailing frack sand producer is predicated on EBITDA reaching roughly $25 million per annum in two years, which would imply a 7x multiple, far superior to the 18x multiple on LTM segment EBITDA of $10 million."

Related Link: Emerge Energy Sells Fuel Business To Sunoco; Analyst Reiterates Sell, Says Deal Doesn't Make Sense

The analysts noted that Sunoco was involved in three transactions recently. While the $76 million deal was closed in June, the brokerage believes the second quarter reflected one week of contribution due to this transaction. Its ~$78 million Central TX transaction was also closed in June current year. The third transaction of $179 million is predicted to close in the third quarter.

While predicting the second-quarter results to be critical, the brokerage expects an ATM to come on line during the third quarter. As a result, two million units offering is expected in the fourth quarter. Therefore, the brokerage sees strong quarter-over-quarter growth in EBITDA fueled by 22 percent growth in volumes on normalized fuel margins.

At time of writing, Sunoco was trading down 3.43 percent on the day at $29.03.

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Posted In: Analyst ColorLong IdeasPrice TargetCommoditiesReiterationM&AMarketsAnalyst RatingsTrading IdeasBairdBaird Equity ResearchEthan BellamyTransmix
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