Product Design & Development

Sunoco downgraded on high costs, unclear outlook

By The Associated Press
Tuesday, June 30, 2009
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Sunoco downgraded on high costs, unclear outlook

NEW YORK (AP) — Sunoco's higher-cost refining system, pressured margins and unclear future growth opportunities prompted an analyst to cut the refiner's stock.

Goldman Sachs analyst Arjun Mufti downgrade Sunoco to "Sell," citing the cost disadvantages of its refining system, which mostly processes light-sweet crude oil, a more expensive raw material compared with heavy crude oil. Mufti expects the price difference between light and heavy crude oil to narrow, which will help Sunoco. Nonetheless, he believes investors will still raise questions about how the company can reposition it's refining system in the coming years.

Murti lowered his price target for Sunoco to $20, down from a previous estimate of $35. He said that even though Sunoco's stock has underperformed meaningfully this year, down about 47 percent since the start of the year, "we see it remaining under pressure given ongoing concerns regarding the competitiveness of its refining assets and pending greater clarity on how new CEO Lynn Elsenhans will reshape Sunoco's diversified portfolio."

The refining sector as a whole faces a dismal outlook, said Murti, citing the new refineries ramping up in Asia, rising gasoline inventories, Marathon's Garyville major refinery expansion starting up this fall and pressured profits.

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Shares of Sunoco fell 34 cents to $22.95 in afternoon trading.

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