Barclays Reinstates Coverage On Sunoco

Richard Gross of Barclays on Thursday reinstated coverage of Sunoco LP SUN with an Equal-weight rating and $54 price target following the MACS drop down from parent Energy Transfer Partners ETP and the Aloha Petroleum acquisition.

“Sunoco benefits from relatively stable cash flows and solid growth visibility,” Gross wrote. “Cash flow stability is supported by long-term, fee-based contracts for a significant portion of its business, consistent fuel margins and the support of a large-cap investment grade parent.”

Gross adds that Sunoco is well positioned to achieve a 12.5 percent growth from a $4.0 billion to $4.5 billion drop down inventory, organic capital expenditure and third-party acquisitions. However, the analyst adds that the company's favorable growth profile is “somewhat reflected” in the partnership's unit price.

Gross states that shares are currently trading at a yield of 4.4 percent, a “sizeable” premium to 6.3 percent peers and 6.6 percent MLP coverage universe.

A $54 price target is based on a 12-month distribution run rate of $2.50 per unit and a 4.6 percent yield.