While the energy master limited partnerships (MLPs) have had a ton of coverage over the years, there is a phenomenon that happened within the past five years that has made them even more important. In a new research report, Deutsche Bank has initiated coverage of the MLP segment and points out that the huge growth in oil and gas production in the United States has sparked a gigantic need for energy infrastructure.
The Deutsche Bank team stresses that this infrastructure need could provide a nice tailwind. They see exploration and production companies working to connect their production to demand centers, utilities looking for dependable fuel sources and natural gas have become a bigger source, downstream players sourcing advantaged feedstock, and export demand, which could increase with changes in current law.
We screened the Deutsche Bank list for high-profile companies that have outstanding upside and dependable distributions. It is important to note that MLP distributions may contain return of capital.
Energy Transfer Partners
This stock has been mauled and is offering investors a top-quality distribution. Energy Transfer Partners L.P. (NYSE: ETP). The company currently owns and operates approximately 35,000 miles of natural gas and natural gas liquids (NGLs) pipelines. ETP also owns 100% of Panhandle Eastern Pipe Line (the successor of Southern Union) and a 70% interest in Lone Star NGL, a joint venture that owns and operates NGLs storage, fractionation and transportation assets.
Sunoco, an affiliate of the company, recently purchased eight Pico convenience stores in South Central Texas. Sunoco is the MLP that mainly supplies motor fuel to independent dealers, stores, distributors and commercial customers. Apart from its distribution business, the partnership also is involved in the operation of retail fuel units and 150 convenience stores.
This top MLP sits almost 20% off its peak, and while it is trading at a substantial yield with high single-digit distribution growth the next few years, that makes this company very undervalued.
Energy Transfer shareholders are paid an outstanding 7.15% distribution. The Deutsche Bank price target is $67. The Thomson/First Call consensus target is lower at $70.50. Shares closed Tuesday at $56.76.