Energy

Is More Weakness Ahead for MLPs With Q2 Earnings?

Jon C. Ogg

Published: July 16, 2019 12:35 pm

Last Updated: July 14, 2022 7:50 am

If one segment within energy would like to avoid further weakness, the master limited partnerships (MLPs) might want to see some growth or stability. This segment is not supposed to have direct exposure to oil and gas prices, and it is supposed to offer high income and distributions by acting as a toll-road collector rather than having exploration and production exposure in oil and gas.

The problem with MLPs is that many distributions had to be cut or eliminated during the hard times, and MLPs have in general not seen a major price recovery, even though oil has recovered handily. It’s almost as if oil and gas investors in MLPs are sometimes taking on much of the downside risk in the industry without the upside, just to get those beneficial distributions.

Credit Suisse has an updated view on its midstream and MLP earnings for the second quarter, and the firm is suggesting that a defensive tone could emerge. The firm’s Spiro Dounis and research team are largely expecting weaker sequential results driven by lower natural gas liquid (NGL) and natural gas prices, increased operating expenses and slower producer activity. Commodity prices continued to decline and producers continued to slow activity in the name of free cash flow during the second quarter. The firm expects management teams to remain constructive, and they do not see any retrenchment in capital plans.

Perhaps the only good news here in this view is that Credit Suisse does believe the consolidation trend will continue.

Credit Suisse has revised target prices for several names with a bias to the downside, largely driven by lower expected production growth, re-contracting risks due to competing projects and even from an expected round of equity issuances. Stronger expected margins drive a price target revision to the upside.

Additional data from the Credit Suisse report has been included on the largest MLPs and entities inside that long report.

Altus Midstream Co. (NASDAQ: ALTM) was reiterated as Outperform with an $8 target price. It is a pure-play, Permian midstream C-corp, anchored by Apache Corporation’s gathering, processing and transportation assets at Alpine High. Altus also owns options in five gas, NGL and crude oil pipeline projects from the Permian Basin.

Antero Midstream Corp. (NYSE: AM) was reiterated as Neutral and the target price was lowered to $14 from $15. With a prior closing price of $11.54 a share, it has a yield of about 10.7% and a $5.9 billion market cap.

BP Midstream Partners L.P. (NYSE: BPMP) was reiterated with an Underperform rating and a $15 target price. Its prior closing price was $16.13. It has a yield of about 7.9% and a $1.7 billion market cap.

Cheniere Energy Inc. (NYSEARCA: LNG) was reiterated with an Outperform rating and an $81 target price, compared with a prior closing price of $68.48. It has a $17.6 billion market cap.

Cheniere Energy Partners L.P. (NYSEARCA: CQP) was reiterated as Underperform with a $39 target price. With a prior closing price of $43.65, it has a yield of about 5.5% and a $21.2 billion market cap.

DCP Midstream L.P. (NYSE: DCP) was reiterated with an Outperform rating and a $39 target price. With a prior closing price of $31.15, it has a yield of about 9.9% and a $4.5 billion market cap.

Delek Logistics Partners L.P. (NYSE: DKL) was reiterated as Underperform with a $30 target price. The prior closing price was $32.00, and it has a yield of about 10.0% and a $787 million market cap.

Energy Transfer L.P. (NYSE: ET) was reiterated as Outperform with a $20 target price. With a prior close of $14.91, it has a yield of about 8.2% and a $39.3 billion market cap. Credit Suisse expects that the group will start to highlight its growth potential for 2020 after the expected decline in Permian. The firm modestly raises estimates on project timing and increased intrastate estimates.

EnLink Midstream LLC (NYSE: ENLC) was reiterated as Outperform with a $13.50 price target. The prior close was $10.52. It has a yield of about 10.7% and a $5.1 billion market cap.

Enterprise Products Partners L.P. (NYSE: EPD) was reiterated as Outperform with a $34 target price. It previously closed at $30.31, and it has a yield-equivalent of 5.8% and a $66.5 billion market cap. Enterprise Products is expected to see sequentially lower second-quarter results, primarily driven by lower crude margins as Midland-Echo II contracts take effect. Credit Suisse expects to hear additional details on the announced LPG/PGP/crude export expansion. While it expects some capital spending in 2019, the overall the expansion should be very efficient.

EQM Midstream Partners L.P. (NYSE: EQM) was reiterated as Neutral and the target price was cut to $45 from $47. With a prior closing price of $42.44, it has a yield of about 10.7% and an $8.8 billion market cap.

Equitrans Midstream Corp. (NYSE: ETRN) was reiterated as Neutral, but the target was cut to $20 from $21. Shares previously closed at $18.56. It has a 9.5% yield and a $4.7 billion market cap.

Holly Energy Partners L.P. (NYSE: HEP) was reiterated with a Neutral rating and $31 target price. The stock previously closed at $28.76, and it has a yield of about 9.3% and a $3.0 billion market cap.

Hess Midstream Partners L.P. (NYSE: HESM) was reiterated as Outperform with a $27 target price. With a prior closing price of $20.95, it has a yield of about 7.3% and a $1.1 billion market cap.

Kinder Morgan Inc. (NYSE: KMI) was reiterated as Outperform with a $23 target price. With a prior close of $21.24, it has a yield of about 4.7% and a $47.5 billion market cap. Credit Suisse expects that seasonality in the natural gas segment will drive sequentially lower results while higher earnings from its products segment should partially offset. Project delays also are expected to negatively affect results as a higher maintenance capital spending should drive a larger decline in distributable cash flows compared to EBITDA.

Magellan Midstream Partners L.P. (NYSE: MMP) was reiterated as Neutral with a $68 target price. With a prior close of $66.05, it has a yield of about 6.1% and a $15.1 billion market cap.

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New Fortress Energy LLC (NYSE: NFE) was reiterated with a Neutral rating and $16 target price. With a prior close of $11.70, it has a $2.0 billion market cap.

MPLX L.P. (NYSE: MPLX) was last seen down 0.8% at $32.00, with a $25.4 billion market cap. Credit Suisse reiterated its Outperform rating with a $38 target price. The yield equivalent is about 8.1%. The firm does not expect to receive combined guidance for the ANDX merger. It is also looking for additional details on both its Whistler and MPLX’s participation in Wink-to-Webster. Still, it lowered its estimates on asset downtime and increased operating expense estimates.

NGL Energy Partners L.P. (NYSE: NGL) was reiterated with a Neutral rating and $16 target price. With a prior close of $15.19, it has a yield of about 10.2% and a $1.9 billion market cap.

Noble Midstream Partners L.P. (NYSE: NBLX) was reiterated as Outperform with a $45 target price. With a prior closing price of $32.79, it has a yield of about 7.5% and a $1.3 billion market cap.

Oasis Midstream Partners L.P. (NYSE: OMP) was reiterated as Outperform with a $28 target price. It previously closed at $21.75 and has a yield of about 8.1% and a $735.4 million market cap.

ONEOK Inc. (NYSE: OKE) was reiterated as Neutral with a $70 target price. Shares previously closed at $70.98. It has a $29.0 billion market cap and a yield of 4.9%.

PBF Logistics L.P. (NYSE: PBFX) was reiterated as Neutral with a $23 target price. With a prior close of $21.49, it has a yield of about 9.4% and a $1.3 billion market cap.

Plains All American Pipeline L.P. (NYSE: PAA) was reiterated as Outperform with a $29 target price. Shares previously closed at $24.62, with a $17.9 billion market cap. It had a yield equivalent of 5.9% on last look. Credit Suisse expects sequentially lower results in the second quarter to have been driven by seasonality in its S&L segment, and modest Permian transportation volume growth could act to partially offset as smaller projects went online late in the first quarter and continue to ramp up.

Plains GP Holdings L.P. (NYSE: PAGP) was reiterated as Outperform with a $29 target price. With a prior closing price of $25.11, it has a yield of 5.7% and a $4.0 billion market cap.

Phillips 66 Partners L.P. (NYSE: PSXP) was reiterated as Outperform with a $59 price target. It has a prior closing price of $51.12 and a yield of 6.6%. Its market cap was $6.4 billion. Credit Suisse is looking for more color on additional growth projects such as the proposed ACE pipeline with Harvest/PBFX and the announced Liberty and Red Oak pipelines.

Rattler Midstream L.P. (NASDAQ: RTLR) was reiterated as Neutral with a $22 target price. With a prior close of $19.82, it has a $3.0 billion market cap.

Summit Midstream Partners L.P. (NYSE: SMLP) was reiterated as Underperform and the target price was lowered to $7 from $8. With a prior closing price of $7.83, it has a yield of about 14.8% and a $645.9 million market cap.

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Shell Midstream Partners L.P. (NYSE: SHLX) was reiterated as Underperform with a $17 target price. The stock was last seen trading up 1.4% at $21.48. It has a $5.0 billion market cap, and its yield-equivalent was 7.8%.

Sunoco L.P. (NYSE: SUN) was maintained with a Neutral rating, but Credit Suisse raised its target price to $34 from $32. It was last seen up 1.4% at $33.69, and it has a market cap of $2.8 billion and a yield equivalent of about 10.1%.

Tallgrass Energy L.P. (NYSE: TGE) was reiterated as Neutral but the target price was lowered from $25 to $24. Its market cap is $6.2 billion, based on a recent price of $22.13, and it has a yield equivalent of 9.6%.

Targa Resources Corp. (NYSE: TRGP) was reiterated as Outperform with a $49 target price, versus a recent share price of $40.96. Targa has a $9.5 billion market cap and a yield of 8.7%.

Western Midstream Partners L.P. (NYSE: WES) was reiterated as Neutral with a $31 target price. It has a $31.56 current price, a $14.3 billion market cap and a yield equivalent of 7.8%.

Williams Companies Inc. (NYSE: WMB) was reiterated as Outperform with a $33 target price. Williams was last seen trading down 1.8% at $28.27, with a $34.3 billion market cap and a dividend yield of 5.3%. It is expected to highlight its Gulf of Mexico opportunities and asset sale opportunities, and to discuss deleveraging.