Sunoco LP (SUN) is the largest fuel distributor in the US. It operates through two segments, Fuel Distribution and Marketing, and All Other.
The Fuel Distribution and Marketing segment purchases motor fuel from independent refiners and major oil companies and supplies it to independently-operated dealer stations, distributors and other consumer of motor fuel, and partnership operated stations, as well as to commission agent locations.
The All Other segment operates retail stores that offer motor fuel, merchandise, food service, and other services that include car washes, lottery, automated teller machines, money orders, prepaid phone cards, and wireless services. It also leases and rents real estate properties.
Although SUN does earn lease income, the lion’s share of its revenue comes from fuel sales, with non-motor fuel sales roughly 2x the amount of its lease income.
SUN is part of the Energy Transfer group, with Sunoco GP LLC serving as the general partner of the company.
Like most other brick and mortar operators, SUN’s revenues were impacted by the pandemic in Q1-2 2020. Motor Fuel sales fell 35%, and non-motor fuel sales fell 15.5%, while Lease income was steady:
Revenue also fell sequentially vs. Q3 and Q4 ’19, while EBITDA had a big bump up in Q1 ’20, and was roughly flat with Q4 ’19 in Q2 ’20.
On a trailing 12-month basis, revenue is down -18%, but EBITDA is up 10%, and DCF is up 15%. With the distribution/unit and the unit count both flat, this has resulted in SUN’s distribution coverage ratio greatly improving from 1.17X to 1.55X:
Coverage was 1.41X in Q2 ’20, down from 1.84X in Q1 ’20, but has averaged 1.55X over the past four quarters.
SUN issues a K-1 at tax time.
SUN does have lower valuations for price/DCF, price/sales, and EV/EBITDA vs. peer averages, whereas its price/book is a bit higher. Its yield is more attractive and its coverage is stronger than the peer average.
At $25.68, it’s 9.16% below analysts’ $28.27 average price target, but is above the $24.00 low price target.
We’ve added these two option-selling trades to our public Covered Calls table and Cash Secured Puts Table, where you can see more detail.
SUN’s December $25.00 call strike pays $2.05, quite a bit more than the $.825 quarterly distribution. It yields 8% in ~4+ months, or 23.75% annualized, and offers you a breakeven of $22.95, which is ~4% below the $24.00 lowest price target.
Like just about every other publicly traded investment vehicle, SUN got whacked in the COVID Crash in Q1 2020. It has bounced 145% off of its 52-week low, and it has outperformed the Alerian MLP ETF, AMLP, over the past month, quarter, year, and year to date.
It has outperformed the S&P 500 over the past month, but has lagged by a wide margin in 2020 and over the past year, and in the last quarter:
SUN’s EBITDA margin is similar, but it lags its peers in ROE, ROA, and EBITDA/Interest coverage, while its net debt/EBITDA and debt/equity leverage are higher than peer averages.
As of 6/30/20, SUN had borrowings of $158M against its revolving credit facility and other long-term debt of $2.9 billion. It had liquidity of $1.3 billion under its $1.5 billion revolving credit facility that matures in July 2023 and has no debt maturities prior to 2023.
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