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Analyst Upgrade Drives Sunoco LP (SUN) Shares Further After M&A

Sunoco LP (NYSE:SUN) shares on April 7 closed up 2.47% in heavy trading to $29.40, after Barclays upgraded the company’s stocks to “Overweight” from “Equal Weight” with a $9 increase in price target to $32.

The upgrade follows the news about the company’s $3.3 billion sale of convenience stores to 7-Eleven. Sunoco LP (NYSE:SUN), being an energy company, sees itself moving away from the convenience store business to focus more on its fuel supply business. While the company operates approximately 1,345 retail fuel sites and convenience stores, the deal affects about 1,100 convenience stores.

In the Barclays upgrade, it was noted that the move opens up doors for Sunoco to “reach 4.5x-4.75x leverage and 1.1x coverage,” a Seeking Alpha report noted. Barclays lowered its 2017 EPS estimates to $0.82 from $1.38, and increased the 2018 EPS estimate to $4.07 from $2.36.

Sunoco LP (NYSE:SUN) expects to complete the deal in the fourth quarter of 2017. The company will use the proceeds of the sale for debt repayment and general purposes.

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What Does The Smart Money Sentiment Say?

We saw slight deflection away from Sunoco LP (NYSE:SUN) shares from the 742 hedge funds we track. As of the end of the fourth quarter of 2016, 10 hedge funds owned Sunoco shares valued at $29 million, versus 12 funds owning shares valued at $47 million in the third quarter of the same year.

Out of the top 5 hedge funds we track that owns Sunoco shares, James Dondero of Highland Capital management increased its holdings by 31% as of the end of 2016. Dondero, who has total assets under management of about $20 billion, owns 89,000 Sunoco shares valued at $2.4 million.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 39.7% gains over the past 12 months and outperformed the 24.1% gain enjoyed by the S&P 500 ETFs. Our enhanced small-cap hedge fund strategy returned more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points over the last 4.5 years (see details here).

The Bottom Line

Sunoco shares further increased in the trading charts after Barclays upgraded the company with an increased price target. Traders flocked Sunoco as we saw over 3 million shares traded that day above its average volume. For more reading, check out 8 countries that produce the most biofuels in the world.

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