After a very strong second quarter, many on Wall Street are looking at current oil and natural gas price targets and raising them, and with good reason. Continued reasonable gasoline prices during the busy summer driving season combined with very warm summer weather are pushing demand for both commodities higher, and that’s good news for the top energy master limited partnerships (MLPs).
In a recent research report, UBS lifts their price targets significantly higher for both oil and natural gas, and needless to say, higher prices should mean more revenue for the top MLPs. We screened the UBS research coverage of the sector for higher yielding companies rated Buy. We found three that look outstanding now.
American Midstream Partners
This company cut its distribution by 13% on April 21 and shares are up over 30% since. American Midstream Partners L.P. (NYSE: AMID) engages in gathering, treating, processing and transporting natural gas in the United States. Its Gathering and Processing segment provides gathering, compression, treating, processing, fractionating, transportation and sale of natural gas, natural gas liquids (NGLs) and condensate. Its Transmission segment transports and delivers natural gas from producing wells, receipt points or pipeline interconnects for shippers and other customers, which include local distribution companies, utilities and industrial, commercial and power generation customers.
The Terminals segment provides above-ground storage services, including petroleum products, distillates, chemicals and agricultural products, at its marine terminals that support various commercial customers, including commodity brokers, refiners and chemical manufacturers to store a range of products. It owns and operates 12 gathering systems, five processing facilities, three fractionation facilities, three marine terminal sites, three interstate pipelines, five intrastate pipelines and one crude oil pipeline.
The company also owns a 66.7% non-operated interest in Main Pass Oil Gathering System, a 50% undivided interest in the Burns Point Plant, a 46% non-operated interest in Mesquite and a 12.9% non-operated indirect interest in Delta House.
Shareholders still receive a whopping 13.85% distribution. The UBS price target for the stock is $15. The Thomson/First Call consensus target is $12.10. Shares closed on Thursday at $11.91.
Enbridge Energy Partners
This is one stock that could be a consistent winner for investors in the years to come. Enbridge Energy Partners L.P. (NYSE: EEP) owns and operates a diversified portfolio of crude oil and, through its interests in Midcoast Operating, natural gas transportation systems in the United States. Its principal crude oil system is the largest pipeline transporter of growing oil production from western Canada and the North Dakota Bakken formation. The system’s deliveries to refining centers and connected carriers in the United States account for approximately 17% of total U.S. oil imports.
The company’s Midcoast Partners natural gas gathering, treating, processing and transmission assets, which are principally located onshore in the active U.S. Mid-Continent and Gulf Coast areas, deliver approximately 2.2 billion cubic feet of natural gas daily.
Top Wall Street analysts see the distribution backed by high-quality, fee-backed assets, and some forecast a very sustainable one-time distribution coverage through this year.
Enbridge investors receive a 10.35% distribution. UBS has a $24 price target, and consensus price objective is $23. Shares closed Thursday at $22.54.
This top energy MLP has had a string of positives lately. Targa Resources Corp (NYSE: TRGP) is a leading provider of midstream services and is one of the largest independent midstream energy companies in North America. Targa owns, operates, acquires and develops a diversified portfolio of complementary midstream energy assets.
The company is primarily engaged in the business of gathering, compressing, treating, processing and selling natural gas; storing, fractionating, treating, transporting and selling NGLs and NGL products, including services to liquefied petroleum gas (LPG) exporters; gathering, storing and terminaling crude oil; storing, terminaling and selling refined petroleum products.
Targa posted better quarterly numbers, and it closed a $1 billion private placement, which will save $80 million a year in interest costs, and finally closed the Targa Resources Partners deal. Jefferies expects the company can keep the current distribution through 2018.
Targa shareholders are paid a 8.85% distribution. The UBS price target for the company is $47, and the consensus is a $43.38. The shares closed Thursday at $41.17.
We like to remind our readers that MLP distributions can contain return of capital. These higher yielding companies make sense for more aggressive total return accounts and should provide a good alternative to other income proxy investments.