Analyst ups Sunoco price target on long-term view

An analyst raised his price target for Sunoco Inc. Thursday, citing long-term opportunities but warning of a weak near-term outlook for the oil refiner.

Bernstein Research analyst Neil McMahon lifted his share price target to $29 from $26, maintaining a "Market Perform" rating. He said the company's stock appears to be trading at a slight discount to its U.S. and European peers, but its financial performance is close to the group average.

Depressed steel and chemical markets will hurt the company's coke and chemicals division in the near term, he said.

Sunoco on Monday said it completed the sale of its 85,000 barrel-per-day refinery in Tulsa, Okla., to Dallas-based Holly Corp. for $65 million. McMahon said the sale of the company's worst performing asset is "clearly a positive long-term strategic move.

"Going forward the company should see an improvement in its total refining margin and be less exposed to downturns in the sector," said McMahon.

Additionally, the company's non-refining businesses such as coke and logistics are set to boost earnings in the longer term, even though they have historically been small contributors to earnings, McMahon said. He said that the coke business is expected to "grow into a significant earnings driver, according to the company's ambitious expansion plans."

Sunoco's logistics business has been a solid contributor to overall earnings, but its chemicals business remains weak amid the economic downturn and rising commodity prices, McMahon said.

Sunoco shares rose 72 cents, or 2.6 percent, to $28.75 in afternoon trading.