Philadelphia-based S
unoco Logistics Partners L.P.
(
SXL
), a master limited partnership (MLP), acquires, owns and operates
a geographically diverse portfolio of refined product and crude oil
pipelines and terminal facilities. Its facilities are located in 17
states in the Northeast, the Midwest, the Southeast and the
Southwest of the country.
Oil refiner and marketer
Sunoco Inc.
(
SUN
) owns 34% of the partnership interest, including a 2% general
partner interest. Sunoco Logistics is organized into four segments
- Refined Products Pipeline System, Terminal Facilities, Crude Oil
Pipeline System, and Crude Oil Acquisition and Marketing.
We remain optimistic on the crude oil pipelines and terminals
operator's near-term prospects, supported by consistency in its
earnings/cash flows, attractive fundamentals and a positive
outlook. Sunoco Logistics currently retains a Zacks #1 Rank, which
translates into a short-term Strong Buy rating. We are also
maintaining our long-term Outperform recommendation on the stock.
The Catalysts
With its low-risk and stable cash flow-generating energy
infrastructure assets, Sunoco Logistics offers investors an
opportunity to capture income growth through steadily-rising cash
distributions and capital appreciation.
We also believe that the partnership's synergistic relationship
with Sunoco Inc. is beneficial on two accounts. First, a sound
fee-based relationship with Sunoco shields it from competitive
pressures in the MLP space and provides it with stable cash flows
and consistent top-line growth opportunities. Second, the
partnership continues to leverage its relationship with Sunoco to
make joint acquisitions.
The partnership has established a track record of consistent
distribution growth - its current quarterly distribution of 47
cents per unit ($1.88 per unit annualized) is up from 15 cents per
unit (60 cents per unit annualized) at the time of its 2002 IPO.
Based on its financials, we trust that Sunoco Logistics' current
yield of more than 4% could be maintained even in periods of
prolonged difficult economic environment.
Last year, Sunoco Logistics and fellow pipeline operator
MarkWest Energy Partners L.P.
(
MWE
) decided to expand their ethane pipeline project. The partnerships
- which teamed up in June 2010 to build the 'Mariner' distribution
system to transport ethane produced in the Marcellus Shale Basin to
markets along the Gulf Coast - will now extend their partnership to
allow for transportation of the gas to Canada.
Known as the 'Mariner West,' the proposed initiative is expected to
begin its service by the third quarter of 2012. It will ship up to
65,000 barrels of ethane per day to Sarnia, Ontario markets to
support additional ethane production in the Marcellus region. The
Mariner West Project is backed by producer demand and assurance
from Sarnia industrial customers.
We also like Sunoco Logistics' recent acquisition of Texon L.P.'s
butane blending business. The fundamental outlook for butane
blending looks positive and we expect the business to offer organic
growth opportunities, in addition to complementing the existing
terminals business.
To Conclude
Overall, we believe Sunoco Logistics is favorably positioned to
continue accelerating revenue/earnings growth over the next few
quarters. Considering its leverage to high crude prices and the
ever expanding demand for energy infrastructure, we believe Sunoco
Logistics is in bargain territory.
MARKWEST EGY PT (MWE): Free Stock Analysis
Report
SUNOCO INC (SUN): Free Stock Analysis Report
SUNOCO LOGISTIC (SXL): Free Stock Analysis
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