We recently published a list of 10 Best Pipeline and MLP Stocks to Invest In According to Analysts. In this article, we are going to take a look at where Sunoco LP (NYSE:SUN) stands against other best pipeline and MLP stocks.
The global pipeline market is part of the energy sector, influenced by the demand and supply of energy. According to a report by Fortune Business Insights, the global pipeline transportation market reached a valuation of $20.57 billion in 2023. Forecasts indicate this market will expand to $34.38 billion by 2032. This growth trajectory represents a Compound Annual Growth Rate (CAGR) of 5.43% throughout the projected period. Notably, North America holds the leading position in the global market in 2023, capturing a 43.32% share.
The United States possesses an extensive and intricate network of pipelines, vital for the transportation and storage of oil, natural gas, and other energy products. The U.S. pipeline network is a critical component of the national energy infrastructure, facilitating the safe and efficient transportation of oil, natural gas, and NGLs, supporting economic activity and ensuring energy security. This infrastructure forms the backbone of the nation’s energy sector, ensuring the efficient movement of resources from production sites to consumers. In a report published by IBISWorld, the Oil Pipeline Transportation sector in the US stands at a value of $15.9 billion in 2024.
The pipeline industry is continuously evolving, driven by technological advancements and changing energy demands. Innovations in pipeline materials, monitoring systems, and leak detection technologies are improving safety and efficiency. The growing focus on reducing greenhouse gas emissions is also driving the development of pipelines for transporting carbon dioxide for sequestration and hydrogen for clean energy applications.
The IEEFA report highlighted that the fossil fuel sector has underperformed the broader market in 7 of the last 10 years. This shows a general trend of underperformance of the fossil fuel sector, which pipelines are a part of, when compared to the general market. However, during terms of economic recovery, increased industrial activity and consumer spending typically lead to higher energy demand, benefiting pipeline companies, leading to improved performance. Especially in terms of the current President’s administration.
Companies in the fossil fuel segment could benefit from the current administration’s potential rollback of climate initiatives, while renewables could face headwinds from reduced government support.
Pipeline companies have underperformed the overall market performance, especially over the past 5 years where TECH firms have been the centre of attention due to the popularity of AI amongst investors. This highlights an opportunity for investors seeking stable dividend yields or steady income streams. The pipeline industry can be attractive to investors during economic recovery due to its potential for stable cash flow and dividend payouts.
Master Limited Partnerships (MLPs) offer distinct advantages over traditional U.S. stocks, primarily centred on their unique tax structure and resulting higher yields. Unlike corporations that face double taxation, MLPs are pass-through entities, meaning profits are distributed directly to unitholders (investors) without incurring corporate income tax. The current tax rate for corporations in the US is 21%, compared to MLP stocks which pay between 10-20%. This can translate to consistent distributions, often yielding higher than traditional dividend-paying stocks; with yields often to be in the range of 5%-8%, or more, whereas the market’s average dividend yield is much lower, generally around 2%.
Our Methodology
For this list, we used the Finviz stock screener to filter out pipeline and MLP stocks. Next, we manually searched for the average upside potential of each stock and selected 10 stocks with the highest values. The list below is ranked in ascending order of the upside potential as of March 14.
At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A truck parked at a gas station, its fuel tank being filled from a pump.
Sunoco LP (NYSE:SUN)
Upside Potential According to Analysts: 9.88%
Sunoco LP (NYSE:SUN) is a major US energy infrastructure and motor fuel distributor. The company operates in three segments, namely Fuel Distribution, Pipeline Systems, and Terminals. The Fuel Distribution segment focuses on distributing motor fuels, propane, and lubricating oil to diverse clients, including dealers, distributors, commercial consumers, and retail locations. They also lease real estate and offer non-fuel products and services, such as in-store merchandise, food services, and car washes. The Pipeline Systems segment manages an integrated network of refined product, crude oil, and ammonia pipelines and terminals. While the Terminals segment operates transmix processing facilities and refined product terminals, providing blending, additive injection, handling, and filtering services. Sunoco LP’s diversified operations support the distribution and logistics of essential energy products across the United States.
Sunoco LP’s (NYSE:SUN) earnings report for Q4 2024 shows a topline of $5.27 billion, missing analyst estimates by $914 million. EBITDA was reported at $446 million and an EPS of $0.75. Transcripts reveal a spending of $74 million on growth capital and $58 million on maintenance capital.
Joe Kim, the President and Chief Executive Officer of Sunoco LP (NYSE:SUN) stood by the company’s recent performance during the Q4 quarterly earnings report. He had this to say:
“Looking forward, we expect the fundamentals for all three segments to remain very attractive in 2025 and beyond. We’re off to a strong start and we expect 2025 to be another record year.
Let me finish with one final thought. We have gained a solid reputation as a thoughtful defensive play within the mid-stream sector, given our ability to deliver strong results in volatile commodity environments as well as challenging macro environments such as inflation and even pandemics.”
Sunoco LP (NYSE:SUN) provided guidance for EBITDA to range between $1.9 billion to $1.95 billion for 2025, compared to $1.56 billion during 2024. Analysts’ consensus of the average twelve-month trading price at $63.50, reflecting an upside of 9.88%.
Overall, SUN ranks 5th on our list of the best pipeline and MLP stocks. While we acknowledge the potential for SUN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SUN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published at Insider Monkey.