Sunoco Looks To Finish SunCoke Separation

After successfully completing an IPO this past July, Sunoco (SUN) announced that it is ready to move on to the second stage of its planned spinoff of SunCoke Energy (SXC). On January 17th, 2012 Sunoco will issue a special stock dividend


distributing its remaining ~81% stake in SunCoke to shareholders as of January 5th. SUN shareholders will receive 0.53 of a share of SunCoke for every share of SUN owned. This is just another milestone in Sunoco’s broad transformation project which has seen the company unload its chemical operations and exit the refining business. For additional information on the companies and the transaction, please see our earlier posts here.

Unfortunately, life as an independent company hasn’t been so pleasant for SXC as its share price has plummeted ~35% since its debut. One bit of news that negatively affected its price was the recent release of its 2012 outlook which came in below Wall Street’s forecasts. In fact, it came in significantly below the company’s own forecasts from a June 2010 analyst day presentation (which can be found in our earlier posts). Shows just how much forecasting even 1-2 years in advance is worth. For 2012, the company is expecting coke production to grow to ~4-4.2m tons and coal production to increase by 400K to ~1.8m tons. EBITDA is forecasted to be between $250 and $280 million while EPS is expected to be between $1.30 and $1.65 (based on 70m shares outstanding). Based on those numbers, the stock is currently trading at a P/E of between 6.4 and 8.2x ’12 earnings. Bear in mind that much of the growth is due to the recent completion of the company’s Middletown, OH plant. Another interesting note from that publication is that the company is planning to invest $30m, roughly ~20% of its CapEx budget, in India.

The operating environment remains challenging for the business though and it is tough to feel real good about steel production quickly ramping up. Keep an eye on pricing though. Another thing to watch for is whether or not the stock dividend creates an overhang on the stock. Sunoco’s top holders are the big ETF guys – SSGA, Vanguard and Blackrock – who own ~18% of its shares. That translates into ~14.5% of SunCoke, a nice chunk considering their current stakes are very low.

Disclosure: Author holds no position in any company mentioned.

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