(Click here for continuing CSP Daily News coverage of the Couche-Tard/Casey's situation.)
Headquartered in Philadelphia, Sunoco is a leading manufacturer and marketer of petroleum and petrochemical products. With 675 thousand barrels per day of refining capacity, approximately 4,700 retail sites selling gasoline and convenience items and an ownership interest in approximately 6,000 miles of crude oil and refined product pipelines and approximately 40 product terminals, Sunoco is one of the largest independent refiner-marketers in the United States.
Sunoco's market cap is $3.6 billion, or less than $3 billion subtracting its stake in Sunoco Logistics Partners, its pipeline master limited partnership (MLP). But the stores alone would be worth $6.1 billion if they fetched the same price that Couche-Tard is paying for Casey's, he said. And that is excluding Sunoco's refining, logistics, coking coal and chemicals businesses.
Cramer called the Couche-Tard offer "an eye-opener," saying it shows that now Sunoco's parts are worth more than the whole. And the analysts who cover the stock (there's one "buy," 11 "holds," and four "underperforms" on SUN right now, according to the report) "don't realize the breakup value that's hidden within its assets."
Sunoco's refining business, which makes up 53% of sales, could be very attractive to the Valeros and Tesoros of the world, he said. Refining margins have finally bottomed, and the company's shutdown of two facilities, in New Jersey and Oklahoma, have allowed for reduced costs and an increase in its capacity utilization rate to 85% from 74%. Refiners "can make a lot of money," Cramer said, when those facilities are running at full capacity.
Retail marketing is responsible for 28% of sales. The scale of this operation is "simply enormous," Cramer said, and it would give a company like Couche-Tard pricing power with its suppliers. The more Circle Ks there are, the easier it is for Couche-Tard (which operates a Circle K in the United States) to demand lower prices from, for example, Pepsico.
Also, Sunoco is raising cash by divesting some of its least favored stores, collecting $120 million in 2009 with another $80 million expected over the next two years. (Click here for previous CSP Daily News coverage.)
The logistics business is conducted through Sunoco Logistics Partners, a publicly traded MLP with 2,200 miles of refined product pipelines, 3,800 miles of crude pipelines, 21.2 million barrels of crude oil storage capacity and 41 refined-product terminals. Sunoco owns 33% of the MLP, and it generates 13% of the company's revenues.
In early February, Sunoco sold off half its chemicals division, which accounts for 4% of sales, to Braskem for $350 million in cash. But it kept its hands in phenol, a chemical used in making plastics.
"That could be a hot business when plastics take off," Cramer said, "and they are."
There is also Sunoco's coking, or metallurgical, coal business, which comprises 2% of revenues. Met coal is used in the production of steel, and Cramer said that he is enthusiastic about this commodity. Sunoco's coking division last quarter was up 179% from a year ago, and up 123% from the previous quarter. Cramer called this business a "hidden gem," especially given the high demand and low supply.
Lastly, he said that great management always adds to a company's value. And Sunoco has that in Lynn Elsenhans, Cramer said, who took over in August 2008. She and her team have been cutting costs, shutting down underperforming refineries and raising cash by partially monetizing the company's logistical assets. (Click here for previous CSP Daily News coverage.)
If Casey's is worth $2 billion, Cramer said, then there is "no doubt that Sunoco's assets are undervalued [and]...the parts here are worth a whole lot more than the whole."
"That makes Sunoco to me a buy, buy, buy," Cramer said.
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