Sunoco Inc.SUN

Morningstar Rating

Stock Research and Analysis

by Allen Good

Sunoco had a difficult 2008, as margins suffered when gasoline prices failed to keep pace with soaring crude oil prices early in the year, and demand collapsed later in the year when the economy weakened. Now, demand continues to languish, perpetuating Read more

Bulls Say

Projects to upgrade heating oil to ultra low sulfur diesel production will enable the company to take advantage of higher diesel margins when the economy rebounds.

Sunoco's ownership in Sunoco Logistics Partners and chemical and coke production offers a diversified portfolio that will provide income regardless of refining margin weakness.

With retail outlets, Sunoco has some power to pass along costs through its own retail network. It also is not totally reliant on the wholesale market to distribute its refined product.

Despite weakening gasoline demand, little capacity has been added to the United States refining system. Any natural disaster, fall in oil prices, extended refinery shutdown, or economic recovery could bolster demand and margins. Read more

Bears Say

Sunoco's refineries rely heavily on light crude, which is more expensive and less available than heavy crude. With limited heavy-crude refining capacity and declining supply of light crude, premiums will continue.

Proposed carbon legislation could severely jeopardize future refining profitability. Current forms of legislation would not provide refiners with enough credits to cover their emissions. Acquiring sufficient credits could dramatically increase operating costs.

Persistent weakness of refining margins will severely reduce Sunoco's ability to generate cash flow. The company may need to take on more debt or divest assets in order to raise capital in the next few quarters.

Sustained high gasoline prices will make alternative fuels and transportation solutions economically viable, permanently destroying gasoline demand and damaging refiners' long-term business prospects. Read more

Strategy

Sunoco's strategy includes investing in its current refining assets to expand distillate production and comply with regulatory requirements of refined products. For the coke operation, investment will Read more

Management

John Drosdick, who had been chairman and CEO since 2000, retired in August and was succeeded by Lynn Laverty Elsenhans. Elsenhans was previously at Shell, where she served for eight years, most recently as executive vice president of global manufacturing. Read more

Profile

Sunoco is an energy company engaged in the refining and retail marketing of refined petroleum products, the production of chemicals and metallurgical coke, and the operation Read more

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