Energy Business

J.P. Morgan Stays Very Defensive on Top MLPs to Buy in 2015

Plains All American Pipeline L.P. (NYSE: PAA) remains a top name to buy at most of the Wall Street firms we cover, and it is the third core blue chip recommended at J.P. Morgan. The company has been developing a new NGL fractionator, which will be in La Salle County, Texas. NGL will be sourced from the company’s Eagle Ford-producing region and will be processed and fractionated. This project is designed to fractionate up to 15,000 barrels of NGL per day and is expected to be operational by the second quarter of this year. The company also increased its quarterly distribution to unit-holders last week.

Investors are paid a very solid 5.1% distribution. J.P. Morgan has a $56 price target, while the consensus is even higher at $62.60. The stock closed Wednesday at $47.84 a share.

Natural Gas MLPs

Boardwalk Pipeline Partners L.P. (NYSE: BWP) was absolutely murdered this time last year after a giant distribution cut and a horrible earnings report. The stock gapped down huge and spent most of 2014 fighting its way back. The company is a midstream partnership that provides transportation, storage, gathering and processing of natural gas and liquids for its customers. Boardwalk and its subsidiaries own and operate approximately 14,625 miles of natural gas and liquids pipelines and underground storage caverns with an aggregate working gas capacity of approximately 207 billion cubic feet and liquids capacity of approximately 18 million barrels.

Boardwalk investors are paid a 2.4% distribution. The J.P. Morgan price target is an aggressive $24, while the consensus is set at $21.78. Shares closed at $15.65.

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Dominion Midstream Partners L.P. (NYSE: DM) is one of the nation’s largest producers and transporters of energy, with a portfolio of approximately 24,900 megawatts of generation, 10,900 miles of natural gas transmission, gathering and storage pipeline and 6,400 miles of electric transmission lines. Dominion operates one of the nation’s largest natural gas storage systems, with 947 billion cubic feet of storage capacity, and it serves utility and retail energy customers in 10 states.

Dominion investors are not paid a distribution, so this is a pure capital gain play. The J.P. Morgan price target is $43, and the consensus target is $38.88. Dominion closed Wednesday at $33.70.

EQT Midstream Partners L.P. (NYSE: EQM) is a growth-oriented partnership formed by EQT Corp. to own, operate, acquire and develop midstream assets in the Appalachian Basin. The partnership provides midstream services to EQT Corp. and third-party companies through its strategically located transmission, storage and gathering systems that service the Marcellus and Utica regions. The partnership also owns 700 miles and operates an additional 200 miles of FERC-regulated interstate pipelines. It also owns more than 1,600 miles of high- and low-pressure gathering lines.

EQT unit-holders are paid a 2.6% distribution. J.P. Morgan puts a very aggressive $100 price target out, and the consensus is placed even higher at $104.15. EQT closed trading on Wednesday at $77.84.

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Clearly this is a very contrarian trade, with the energy sector receiving so much negative publicity and chatter. Just remember, so was home-building after the real estate collapse in 2008. Long-term investors with an eye down the road two years and more may be very well rewarded buying these top MLPs now. It may be wise to scale in capital, buying partial position now and watching for earnings.

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