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Is a Beat in Store for Sunoco (SUN) This Earnings Season?

We expect Sunoco LP SUN to beat expectations when it reports fourth-quarter 2018 results after the closing bell on Wednesday, Feb 20. The current Zacks Consensus Estimate for the quarter under review is a profit of 64 cents per unit on revenues of $4.3 billion.

In the preceding three-month period, the Dallas, TX-based motor fuel distributor beat the consensus mark by 76.9% on solid execution, contribution from acquisitions and strong margins.

As far as earnings surprises are concerned, the wholesale distributor and retailer of petroleum products has a mixed record, having gone past the Zacks Consensus Estimate twice in the last four reports. This is depicted in the graph below.

Sunoco LP Price and EPS Surprise


Sunoco LP Price and EPS Surprise | Sunoco LP Quote

Investors are keeping their fingers crossed and hoping that the partnership can continue winning ways by surpassing earnings estimate this time around too. Thankfully, our model indicates that Sunoco might beat on earnings in the fourth quarter.

Let’s delve deeper and find out the factors impacting the results.

Why a Likely Positive Surprise?

Our proven model shows that Sunoco is likely to beat the Zacks Consensus Estimate this quarter as it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and Zacks Rank #3 (Hold) or higher for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +26.89%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Sunoco currently has a Zacks Rank #2 (Buy), which, when combined with a positive ESP, makes us confident of earnings beat. 

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

What is Driving the Better-Than-Expected Earnings?

Sunoco’s array of fuel distribution and terminal acquisitions are expected to be highly accretive to its distributable cash flows, while realizing substantial cost synergies. The four bolt-on purchases made in the course of 2018 – three wholesale fuel businesses and a refined products terminal business – should aid the partnership’s net income and EBITDA significantly.

Third quarter fuel distribution volumes improved by 1% sequentially and we expect Sunoco to maintain the trend in the upcoming quarter as well. This would favorably affect the partnership’s earnings and cash flows. As it is, Sunoco, is likely to benefit from the robust demand from diesel, which commands a higher premium.

Finally, the partnership has reduced its long-term debt by more than $1.2 billion since year-end 2017. This has led to considerably lower interest outgo and another positive for Sunoco’s profitability.

Other Stocks to Consider

Sunoco is not the only energy firm looking up this earnings season. Here are some firms from the space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

Diamondback Energy, Inc. FANG has an Earnings ESP of +3.11% and a Zacks Rank #3. The company is slated to release earnings on Feb 19. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

C&J Energy Services, Inc. CJ has an Earnings ESP of +26.26% and a Zacks Rank #3. The company is slated to release earnings on Feb 21.

Concho Resources Inc. CXO has an Earnings ESP of +8.18% and a Zacks Rank #3. The company is slated to release earnings on Feb 19.

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