With a daily gain of 6.93%, a 3-month gain of 18.91%, and an Earnings Per Share (EPS) of 3.36, Sunoco LP (SUN, Financial) presents an interesting case for value investors. The question we aim to answer is: Is the stock fairly valued? In this article, we provide a comprehensive valuation analysis of Sunoco LP. Stay tuned to uncover significant insights.
Sunoco LP, a Delaware limited partnership, was formed in June 2012 by Susser Holdings Corporation. It is an independent motor fuel distributor in Texas and among the distributors of Valero and Chevron branded motor fuel in the United States. Sunoco LP also receives rental income from real estate that it leases or subleases. The company distributes other petroleum products such as propane and lube oil. With a stock price of $50.59, Sunoco LP has a market cap of $4.30 billion. The company's GF Value, an estimation of fair value, is $53.74, suggesting that the stock is fairly valued.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, the stock of Sunoco LP appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Sunoco LP has a cash-to-debt ratio of 0.06, which ranks worse than 84.43% of 1034 companies in the Oil & Gas industry. The overall financial strength of Sunoco LP is 5 out of 10, which indicates that the financial strength of Sunoco LP is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Sunoco LP has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $23.60 billion and Earnings Per Share (EPS) of $3.36. Its operating margin is 2.4%, which ranks worse than 65.96% of 984 companies in the Oil & Gas industry. Overall, the profitability of Sunoco LP is ranked 7 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Sunoco LP is 15.2%, which ranks better than 60.21% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 9.8%, which ranks worse than 56.02% of 830 companies in the Oil & Gas industry.
ROIC Vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Sunoco LP's return on invested capital is 9.82, and its cost of capital is 6.26.
In short, the stock of Sunoco LP (SUN, Financial) appears to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 56.02% of 830 companies in the Oil & Gas industry. To learn more about Sunoco LP stock, you can check out its 30-Year Financials here.
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