Executive Summary / Key Takeaways

• Scale as the Ultimate Moat: The $9.1 billion Parkland acquisition transforms Sunoco into the largest independent fuel distributor in the Americas, creating a cost-of-goods advantage and negotiating leverage that smaller rivals cannot replicate in a hyper-fragmented market where 60% of operators run single stores.

• Multi-Segment Integration Reduces Volatility: The NuStar pipeline acquisition and European terminal expansion diversify Sunoco beyond fuel distribution, building a three-segment platform that generated record $496 million adjusted EBITDA in Q3 2025 while insulating the business from single-market disruptions.

• Capital Allocation Discipline with Growth Flexibility: Management maintains a clear hierarchy—integrate acquisitions, achieve synergy targets, return to 4x leverage within 12 months—while targeting over $1 billion in annual free cash flow and at least 5% distribution growth, demonstrating that scale expansion and shareholder returns are not mutually exclusive.

• Enduring Demand Thesis Backed by Portfolio Resilience: Despite EV transition narratives, management's conviction that refined products remain essential for decades is supported by a portfolio that thrives on volatility: inflation, tariffs, and market disruptions consistently expand breakeven margins for scaled operators while squeezing smaller competitors.

• Critical Integration Risk Defines the Thesis: The Parkland acquisition's success hinges on realizing $250 million in synergies by 2028 and smoothly managing the Burnaby refinery operations—a new business line where Sunoco lacks direct experience, making execution the primary variable separating a value-creation home run from a costly diversification misstep.

Setting the Scene: From Distributor to Infrastructure Platform

Sunoco LP, founded in 1886 as Susser Petroleum Partners, spent over a century building one of the most resilient fuel distribution businesses in North America. The company weathered the COVID-19 pandemic by growing EBITDA even as volumes collapsed, and navigated peak inflation while holding expenses flat—performance that earned multiple credit rating upgrades and eight consecutive years of distributable cash flow growth. This resilience was not accidental but structural, rooted in a strategy of growing scale and integrating with midstream assets that management has now accelerated into overdrive.

The transformation began in earnest in 2024. Sunoco sold 204 convenience stores in West Texas, New Mexico, and Oklahoma to 7-Eleven (SVNDY), harvesting a notable gain while reclassifying transmix processing margins. Weeks later, the company closed its "home run acquisition" of NuStar Energy (NS), adding 6,000 miles of refined product pipeline, 6,000 miles of crude pipeline, and 67 terminals. The integration was completed in six months, delivering double-digit accretion within the first year. This was followed by a Permian Basin joint venture with Energy Transfer (ET), European terminal acquisitions, and the pending €500 million TanQuid deal in Germany.

The capstone came on October 31, 2025, with the $9.1 billion Parkland Corporation (PKI) acquisition. This deal established Sunoco as the largest independent fuel distributor in the Americas, extending its reach to 26 countries and territories across North America, the Greater Caribbean, and Europe. The combined entity will deliver over 15 billion gallons of refined products annually, with infrastructure spanning approximately 14,000 miles of pipeline and over 160 terminals. This is no longer a fuel distributor. It is an integrated energy infrastructure platform.

Strategic Differentiation: Why Scale Creates Asymmetrical Upside

Sunoco's moat rests on three pillars that become more valuable as the company grows: terminal network density, integrated retail operations, and supply chain optionality. Each pillar translates directly into tangible financial benefits that competitors cannot easily replicate.

The terminal network—over 100 facilities across the U.S., Puerto Rico, Mexico, and Europe—provides a cost advantage that shows up in operating margins. By owning storage and distribution infrastructure, Sunoco reduces reliance on third-party logistics, cutting transportation costs and ensuring supply reliability during market disruptions. This network enabled the company to grow Q3 2025 fuel distribution volumes 7% year-over-year while total U.S. demand remained flat, capturing market share from smaller operators who lack similar infrastructure.

Integrated retail operations, including 78 stores in Hawaii and New Jersey plus franchise royalties and credit card services, create non-fuel revenue streams that stabilize cash flows when fuel margins compress. The West Texas sale deliberately shrank this footprint to focus on higher-return assets, yet the remaining retail operations still contribute meaningful lease income and cross-selling opportunities. This diversification mirrors the successful model in Hawaii and Puerto Rico, where high-margin niche markets generate consistent returns regardless of mainland fuel price volatility.

Supply chain optionality represents the most underappreciated advantage. Sunoco's scale—distributing 9 billion gallons annually across more than 40 states—creates a cost-of-goods advantage that management actively leverages in volatile markets. When refinery turnarounds constrain supply, Sunoco's multi-source procurement ensures continuity while competitors face shortages. When tariffs or inflation raise prices, the company's commercial capabilities and expense management allow it to capture margin expansion while smaller operators struggle with higher breakevens. This dynamic played out in Q3 2025, where tempering market volatility did not produce the "outsized fuel profit quarter" seen in 2024, yet the segment still generated $232 million in adjusted EBITDA.

Financial Performance: Evidence of a Working Strategy

Sunoco's Q3 2025 results provide clear evidence that the scale-and-integration strategy is delivering. Adjusted EBITDA hit a record $496 million, up from $470 million a year ago, while distributable cash flow reached $326 million. Net income surged to $137 million from just $2 million in Q3 2024. The prior year was, however, significantly depressed by $197 million in unfavorable inventory valuation adjustments, suggesting that while the reported increase is substantial, the underlying operational improvement compared to an adjusted prior year figure of $199 million is less pronounced. The underlying operational improvement is unmistakable.

Segment performance reveals the strategic logic. Fuel Distribution EBITDA declined to $232 million from $253 million year-over-year. This was primarily due to the West Texas sale and lower per-gallon margins (10.7¢ vs. 12.8¢), though the 7% increase in gallons sold to 2.295 billion partially mitigated these effects, demonstrating market share capture. Management expects normalized segment EBITDA to grow for the seventh consecutive year in 2025, confirming that the core distribution business remains healthy.

Pipeline Systems emerged as the star performer, with EBITDA jumping to $182 million from $136 million. Throughput rose to 1.296 million barrels per day, driven by refinery turnarounds in the prior period and the ET-S Permian joint venture contribution. The NuStar acquisition's impact is stark: nine-month EBITDA surged to $531 million from $189 million, reflecting both the timing of the acquisition and strong system demand. This segment now provides stable, fee-based cash flows that offset fuel distribution cyclicality.

Terminals delivered $75 million in EBITDA, up from $67 million, as the transmix business continued its strong year and the Portland terminal acquisition contributed. Nine-month EBITDA more than doubled to $212 million from $113 million, with acquisitions driving a $106 million increase in segment profit. The European expansion—Zenith terminals in 2024 and TanQuid pending—positions this segment for continued growth as global refined product flows shift.

The balance sheet reflects disciplined capital allocation. Leverage stood at 3.9x at quarter-end, with management committed to returning to the 4x target within 12 months post-Parkland, faster than initially projected. Liquidity is robust: $3.24 billion in cash and $1.45 billion in unused credit facility availability. The company spent $418 million on capital expenditures in the first nine months of 2025, with $310 million allocated to growth projects, demonstrating a "build vs. buy" approach that flexes up for attractive roll-up opportunities under $100 million.

Outlook and Execution: The Path to $1 Billion in Free Cash Flow

Management has reaffirmed full-year 2025 adjusted EBITDA guidance of $1.90 to $1.95 billion, excluding one-time transaction costs. This confidence stems from the Parkland business performing "materially better than 2024" year-to-date, combined with the legacy Sunoco business continuing its consistent growth trajectory. The decision not to update guidance immediately reflects the recent closing timing and pending TanQuid closure, not any deterioration in fundamentals.

The synergy math is compelling. Parkland is expected to deliver over $250 million in synergies by 2028, driving greater than 10% accretion to distributable cash flow per unit. This is on top of the NuStar acquisition's double-digit accretion and the ET-S Permian joint venture's strengthening performance. Management's early thoughts on 2026 are clear: "the Parkland business is performing year-to-date, better than 2024," while "for Sunoco, legacy business, we continue to grow." The combination of a solid baseline, continued organic growth, and substantial synergies positions 2026 for "another outstanding year."

The free cash flow target of over $1 billion annually represents a more than 50% increase versus the stand-alone case. This isn't aspirational; it's the mathematical outcome of integrating Parkland's cash-generative assets, realizing synergies, and maintaining disciplined expense management. The company has already demonstrated this capability, growing EBITDA during COVID while volumes fell and holding expenses flat during peak inflation.

Distribution growth remains a priority. Sunoco targets at least 5% annual distribution growth for 2025, with increases announced quarterly. The creation of SunocoCorp (SUNC), a C-corp tracker trading on NYSE, provides broader investment access while ensuring dividend equivalency for at least two years. Management's intention to minimize corporate taxes for at least five years through capital deployment and tax planning further enhances the distribution sustainability.

Risks and Asymmetries: What Could Break the Thesis

The Parkland acquisition, while transformative, introduces execution risk that cannot be dismissed. Sunoco is now in the refinery business via the Burnaby Refinery, an operational complexity the company has not managed directly. The risk includes crude oil and bio-feedstock supply disruptions, operational availability issues, labor shortages, regulatory compliance, and community opposition. Management acknowledges the lack of recent refinery operating experience and dependence on former Parkland employees, making retention and integration critical.

Environmental regulations present a persistent threat. Operations are subject to increasingly stringent international, federal, state, and local laws governing environmental, health, safety, and security matters. Violations could trigger substantial fines and remediation costs. Pipeline safety regulations from the Department of Transportation impose strict compliance standards, with failure potentially leading to significant penalties and capital requirements. The company's extensive terminal and storage network also creates contamination liability under laws like CERCLA , which imposes strict, joint, and several liability for investigation and remediation.

The EV transition remains the existential long-term question. Management is unequivocal: "our long-held belief" is that refined product demand will remain robust for decades, a view supported by the federal EV tax credit's expiration and the reality that over 90% of global transportation energy consumption still comes from refined products. While this conviction is backed by portfolio performance—Hawaii, Puerto Rico, and Caribbean markets show sustained high margins—investors must weigh this against the IEA's projection that EVs displaced over 1.3 million barrels per day of oil demand in 2024. Sunoco's scale and diversification provide resilience, but a faster-than-expected transition would pressure volumes.

Tariffs and trade policy create near-term volatility. Management views this as an opportunity: "higher tariffs mean higher prices" in an inflationary scenario where Sunoco's scale and expense management excel, while "uncertainty leads to volatility" that the company's commercial capabilities can exploit. The Q3 2025 hurricane impact in Jamaica—one of 25 Caribbean markets—demonstrates the portfolio's diversification, with no material expected impact on fourth-quarter results. However, a broader trade war could disrupt supply chains and margins in ways that even scale cannot fully offset.

Valuation Context: Pricing a One-of-a-Kind Platform

At $53.82 per share, Sunoco trades at a P/E ratio of 19.35x and offers a substantial 6.84% dividend yield. The enterprise value of $16.96 billion represents 9.85x trailing EBITDA, a reasonable multiple for a business that has fundamentally transformed its scale and diversification profile over the past 18 months. The payout ratio of 128.36% appears elevated but reflects the company's confidence in near-term free cash flow generation exceeding $1 billion annually.

Comparing Sunoco to direct competitors highlights its unique positioning. Global Partners (GLP) trades at a similar EV/EBITDA multiple (9.33x) but with lower operating margins (1.31% vs. 4.23%) and higher debt-to-equity (3.01x vs. 1.82x). CrossAmerica Partners (CAPL) carries a higher EV/EBITDA (12.11x) but negative book value and a payout ratio of 176.47%, reflecting its smaller scale and higher leverage. NGL Energy Partners (NGL) shows lower EV/EBITDA (6.50x) but operates a different model with water services diversification and higher debt-to-equity (4.96x).

Sunoco's return on equity of 11.75% and return on assets of 4.30% demonstrate efficient capital deployment, particularly given the recent acquisition activity. The company's ability to maintain a current ratio of 3.11 and quick ratio of 2.44 while integrating major acquisitions reflects strong liquidity management. The debt-to-equity ratio of 1.82x is modest for a capital-intensive business and well within management's 4x leverage target.

The valuation multiple does not yet reflect the full impact of Parkland synergies or the TanQuid acquisition's European expansion potential. If management delivers on its $250 million synergy target by 2028, the effective purchase price multiple drops significantly, creating a clearer path to multiple expansion as integration milestones are achieved.

Conclusion: Scale, Execution, and the Refueling of Value Creation

Sunoco has executed a strategic transformation that redefines its investment proposition. The company evolved from a resilient fuel distributor into an integrated energy infrastructure platform with unmatched scale across North America, the Caribbean, and Europe. This scale creates a self-reinforcing cycle: cost-of-goods advantages drive margin expansion, commercial capabilities capture value from volatility, and integrated assets provide multiple levers for growth.

The Parkland acquisition is the critical variable. If Sunoco integrates the Burnaby refinery smoothly and captures the projected $250 million in synergies, the company will have built an asset base capable of generating over $1 billion in annual free cash flow while growing distributions at 5% or more. The early performance indicators—Parkland's 2025 results materially exceeding 2024, legacy Sunoco's continued volume outperformance, and the rapid NuStar integration—suggest management's execution track record is a competitive advantage in itself.

The thesis is not without risk. Refinery operations introduce new operational complexity, environmental regulations remain a persistent threat, and the long-term EV transition could eventually pressure demand. However, Sunoco's multi-segment diversification, geographic expansion, and management's proven ability to manage expenses and capture value in volatile environments provide multiple layers of downside protection.

For investors, the decision hinges on whether they believe scale still matters in energy infrastructure. Sunoco's bet is that in a hyper-fragmented market, the largest player with the most integrated assets and lowest cost structure will generate superior returns through cycles. The Q3 2025 record results and the clear path to $1 billion in free cash flow suggest this bet is paying out. The stock's valuation at 9.85x EBITDA and 19.35x earnings does not yet reflect the full transformation, leaving room for upside as Parkland synergies materialize and European expansion progresses.