With summer right around the corner, and the busy vacation driving season also set to start, some of the top firms on Wall Street are becoming more positive on the price of oil, especially after the black gold fought its way back over the psychological $50 per barrel price level. Despite rising U.S. supplies in recent months, the coming driving season is expected to help ease the glut, and with energy underperforming this year, the energy master limited partnerships (MLPs) look like a very good place to be.
In a new research report, JPMorgan remains positive on the larger diversified MLPs and the report noted this:
We maintain our positive view on the group given upside leverage to increasing domestic crude oil and natgas production, improved financial health, and strong diversification across the midstream value chain. Moreover, the group currently Offers an attractive 7%+ yield, notably more income than the 3.4%/4.0% yields Of Utilities and REITs.
Four diversified MLPs are rated Outperform at JPMorgan, and all look like good values for growth and income investors at current levels.
Enterprise Products Partners
This is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) once again, despite the energy slump, recently raised its distribution 1%. The company maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating against some of the wilder swings of the commodities that it trades in.
One reason why many analysts may like the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above one times, making it a relatively less risky MLP. Its distributions have grown for several quarters, and last quarter Enterprise Products announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.415 per common unit, or $1.66 per unit on an annualized basis.
JPMorgan noted this in the report:
The company should benefit from the numerous projects placed into service recently and the upcoming ‘big five’ (Midland-Echo, PDH, Frac 9, Shin Oak, iBDH) projects. Moreover, the integrated value chain with high barriers to entry continues to spawn attractive downstream projects servicing growing petroleum/chemical needs and also stands to capitalize on Permian processing and oil/gas takeaway needs.
Investors receive a 6.07% distribution. The JPMorgan price target for the units is $33, and the Wall Street consensus target is $32.96. The stock closed Monday at $27.33.
Energy Transfer Partners
This stock was acquired by Sunoco Logistics Partners last year. Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States.
The company’s Intrastate Transportation and Storage segment transports natural gas from various natural gas producing areas, and through ET fuel system and HPL system. It owns and operates 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. Its Interstate Transportation and Storage segment provides natural gas transportation and storage services; owns and operates approximately 12,300 miles of interstate natural gas pipeline; and has interests in various natural gas pipelines.
The Midstream segment gathers, compresses, treats, blends, processes and markets natural gas. It owns and operates 35,000 miles of in service natural gas, 31 natural gas processing plants, 21 natural gas treating facilities and four natural gas conditioning facilities.
The report noted:
With the dust settling post the merger with Sunoco Logistics (helps B/S & coverage post cut) and mega project execution derisking in the rear view mirror (Rover, DAPL), the company has passed crucial hurdles, which we believe the market fails to credit. We expect large size, diversification, vertical integration and contributions from high quality projects will benefit ETP. Execution remains the focus from here.
Unitholders receive a 9.14% distribution. JPMorgan has a $30 price target, close to the consensus target of $30.86. The stock closed Monday at $23.42.