Energy Business

One Analyst Sees Boardwalk Undervalued by Almost 60%

Boardwalk Pipeline Partners L.P. (NYSE: BWP) has now had its fourth-quarter earnings release, and investors know that the quarterly distribution will be $0.10 per unit. 24/7 Wall St. has seen a report from Credit Suisse that is still incredibly bullish on this master limited partnership (MLP) and its awaited turnaround.

Investors should note that this call included the most bullish price target, so it is above the norm and above the consensus. We have shown other competing analyst summaries as well to show both sides of the coin.

Having a 2.5% distribution rate, a yield-equivalent for MLPs, may not sound like much on the surface. What investors remember is that the distribution used to be north of $0.53 per quarter, before it was slashed a year ago. They are no doubt hoping for it to move back in that direction ahead.

Credit Suisse has maintained its Outperform rating, but it raised its price target to $25 from $24. This is now the highest listed target of all analysts following the stock. The most important consideration is that, based on a current $15.80 unit price, this implies upside of a whopping 58%.

The Thomson Reuters consensus price target is $21.56, implying upside of 36%. Note that Boardwalk units were trading at $24 prior to the distribution slash a year ago. Boardwalk had also traded above $30 in 2013 and in 2011.

So, what does the most bullish of all Boardwalk analysts see here? Credit Suisse highlighted the latest earnings being in line with expectations, a $1.5 billion growth backlog and more to come on low commodity prices. Credit Suisse’s John Edwards is the analyst behind the call, and he said that Boardwalk is still the firm’s favorite turnaround story in the sector.

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Dividend, or distribution, lovers will perk up here. Edwards believes that Boardwalk is on track to return to normalized distributions within the next two years. Normalized is meant to mean $0.40 per quarter, or $1.60 per year. That would generate close to a 10% yield equivalent if that occurs. Edwards said:

The identified projects are supported by 2.7 Bcf per day of firm commitments in growing demand markets while projects such as Gulf South include plans for the addition of bi-directional capability. In the near term natural gas storage represents upside potential due to volatility in prices and low gas prices have contributed to increased demand from demand-pull projects.

Edwards revised his earnings per unit as follows:

  • 2015 to $0.89 from $0.92
  • 2016 at $1.09 (same as before)
  • 2017 to $1.26 from $1.24
  • 2018 to $1.20 from $1.19

Boardwalk Pipeline Partners is actually down since its earnings report on Monday morning. The MLP’s units were up at $16.30 initially after earnings, and Tuesday morning it was down to $15.80. Its 52-week range is $11.99 to $20.51, and the market cap is roughly $3.85 billion.

Elsewhere …

Bank of America Merrill Lynch maintained its Buy rating and $21 price objective. Its take was that the road map is lacking and that the status quo remains. Still, it is considered a value pick.

Wells Fargo has only maintained its Market Perform rating. That firm lowered its valuation range on integrity costs for pipeline upgrades. The range was cut to $17.00 to $19.00 from a prior range of $18.00 to $20.00. The difference here is that Wells Fargo sees that $0.40 annualized distribution remaining in place until normalizing to around $1.47 per unit in 2018.

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