Shares of Sunoco (NYSE:SUN) experienced a shift in market sentiment on Tuesday as Citi adjusted its position on the energy company’s stock. The firm downgraded the stock to Neutral from Buy and set a price target of $65.00.
The rating change comes after Sunoco shares rose 6% relative to the Alerian MLP Index (AMZ) following the announcement of its acquisition of NuStar Energy (NS).
Citi previously upgraded Sunoco to Buy, expecting the company to exceed its growth target and achieve targeted synergies achieved through the NuStar deal. While those results are still pending, Sunoco’s recent stock performance has narrowed the valuation gap that existed following the announcement.
The market has largely realized the benefits of accretion and synergies, with the main concern being the potential erosion of incentive distribution rights (IDRs).
With the NuStar deal still pending and no significant new data available, Citi believes the balance of risk and reward for Sunoco is now more even. The firm notes that Sunoco’s valuation of 8.1 times projected 2026 EBITDA is in line with its diversified peers, reflecting the value creation and transformative impact of the deal.
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