Sunoco Logistics Partners L.P. (SXL) – predominantly refined products pipeline master limited partnership (MLP) – has commenced an underwritten public offering of 1,750,000 million common units. The partnership also intends to provide the underwriters with an option to purchase up to 262,500 million additional common units to cover over-allotments, if any.
 
Sunoco Logistics plans to use the net proceeds from this offering to pay back outstanding debt under the $395 million revolving credit facility of its wholly owned subsidiary, Sunoco Logistics Partners Operations L.P.
 
Philadelphia-based Sunoco Logistics owns and operates a geographically diverse portfolio of refined product and crude oil pipelines/terminal facilities located in 13 states in the Northeast, the Midwest and the Southwest of the country.
 
Late last month, the partnership announced weak second quarter 2010 results. Sunoco Logistics reported earnings per unit of $1.29, well below the Zacks Consensus Estimate of $1.37 and the year-ago quarter’s earnings of $1.74. The quarterly results were adversely affected by higher interest expense associated with Senior Notes issued in 2010. Earnings were also pulled down by a significant fall in crude oil pipeline operating income.
 
However, the partnership raised its quarterly distribution by 2.2% sequentially and 9.6% year over year to $1.14 per unit or $4.56 per unit annualized, representing the twenty-eighth distribution increase in the past 29 quarters.
 
(Read our full coverage on this earnings report: SXL’s Profit Falls, Revenue Rises)
 
With its stable fee-based revenue, geographically-diverse assets and strong business fundamentals, Sunoco Logistics offers investors an opportunity to capture income growth through steadily-rising cash distributions and capital appreciation.
 
But the slowdown in refined products demand growth and the difficult operating environment remain key areas of concern, in our view.
 
We have a Zacks #3 Rank (short-term Hold recommendation) on Sunoco Logistics units. We also reiterate our long-term Neutral rating.
 
SUNOCO LOGISTIC (SXL): Free Stock Analysis Report
 
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