Energy

Why Merrill Lynch Has Raised Targets on Many Top MLPs

Jon C. Ogg

Published: March 8, 2016 11:10 am

Last Updated: January 13, 2020 12:14 pm

The world of master limited partnerships (MLPs) saw its ground go from stable to shaky during the oil and gas meltdown from 2014 into 2016. Some MLPs have even found themselves entering 2016 in financially desperate situations. Some investors and analysts have decided that the weakness seen in the first six weeks of 2016 has left a lot of value and potential upside.

On March 7, Merrill Lynch raised its price objectives for a dozen or so MLPs. While some were smaller and lower in unit prices, other MLPs and MLP-like entities were among the top of their sector.

Merrill Lynch said in its report that the continued rebound in oil prices and the strength in fixed income markets both contributed to the recent MLP outperformance against the market — for a total return of 7.2% versus 2.7% for the S&P 500 in the prior week. This review is ahead of a key MLP bankruptcy hearing that could change how the market views many of the key MLP structures with their contracts and their partners.

Investors should take note that most MLPs and oil stocks were last seen on Tuesday giving back some of the recent big gains. That is a trend that may continue if the gains prove to have been too far ahead of the real news flow and if the oil recovery was more financially driven than fundamentally driven.

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