Energy
Why Credit Suisse MLP Downgrades Not as Bad as They Sound
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The master limited partnerships (MLPs) have changed quite a bit from the peak days of the oil boom. Many MLPs saw their units surge for years as investors bought into the notion that the infrastructure and pipeline segments of energy could withstand the tests of time with the ups and downs of the oil and gas markets.
Credit Suisse had been one of the firms still willing to hold out hope for the MLPs. As of St. Patrick’s Day, that hope may have faded. Credit Suisse does still have a handful of MLP structures with Outperform ratings, but the firm’s John Edwards came out and downgraded 12 MLPs on March 17. Many of these MLPs are trading well below the target prices, and Credit Suisse is still calling for huge upside in some of the names.
What hurts here, at least on the surface, is that those downgrades include Enterprise Products Partners L.P. (NYSE: EPD) and former MLP of Kinder Morgan Inc. (NYSE: KMI), both being reduced to Neutral from Outperform.
On Enterprise, Edwards said that this MLP remains a bellwether in the space, but with a 6.5% yield and 32% total return outlook, he believes better value can found elsewhere in the near term (especially if crude finds a floor or corrects to the upside). Its target is $30. Enterprise Products units were up 3% at $25.40 on Thursday afternoon despite the downgrade, and its 52-week range is $19.00 to $34.73.
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