Sunoco Earnings Preview: Higher EPS, Lower Sales Expected

Sunoco SUN is scheduled to report third-quarter 2011 results Thursday, November 3, after the closing bell. The petroleum refiner missed per-share earnings estimates in the previous two quarters, but revenue has risen year-over-year in the past four quarters. Investors will be looking for better news on the earnings front, and for the growth streak in revenues to continue. Analysts on average predict that Sunoco will report earnings of $0.59 per share, which would be 62.7% higher than in the same quarter of last year. But note that EPS estimate was $0.71 just 60 days. Also note that Sunoco's earnings have fallen short of consensus estimates in three of the past five quarters. The forecast also calls for the company to post revenues of $8.6 billion, which would be 9.0% lower than a year ago. Looking ahead to the current quarter, things get even worse as analysts so far are looking for a 17.6% year-over-year decline in revenues. And the forecast for the full year so far calls for revenues up 15.1% from a year ago, with per-share earnings more than 96% lower. The Company Philadelphia-based Sunoco refines and markets petroleum products, and it manufactures chemicals in the U.S. It operates in five segments: Refining and Supply, Retail Marketing, Logistics, Chemicals and Coke. The company was founded in 1886 and now has a market cap of $4.5 billion. During the three months that ended in September, the company announced that it would sell two refineries as part of a restructuring to reduce losses and boost profitability. The company also saw shut downs due to Hurricane Irene. And the board approved a $500 million stock buyback plan. Performance The company has a long-term earnings per share growth forecast of 12.2% and a dividend yield of 1.6%. The operating margin is less than the industry average. Nine out of 15 analysts who follow the stock rate it a Hold, and they have a mean price target on it of $44.38 per share. That is almost 18% higher than the current share price. The share price is more than 20% higher than a month ago, but still more than 7% lower than it was six months ago. The 52-week range is $27.76 to $46.98. Over the past six months, the stock's performance has been in line with competitors such as ConocoPhillips COP and Valero Energy VLO, but it has outperformed Hess HES and Murphy Oil MUR. Action Items: Bullish: Investors interested in exchange traded funds invested in Sunoco might want to consider the following trades:

• Rydex S&P Equal Weight Energy RYE is more than 19% higher than a year ago.
• Rydex S&P 500 Pure Value RPV is more than 11% higher than a year ago.
• SPDR S&P Oil & Gas Exploration & Production XOP is more than 22% higher than a year ago.

Bearish: Traders may want to consider this alternative position:

• ProShares UltraShort Oil & Gas DUG is more than 17% higher than a recent 52-week low.

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