Credit Suisse has issued its master limited partnership (MLP) preview for the second quarter and the firm has some upbeat outlooks now, with a little caution to follow. The firm is expecting yearly distribution growth of close to 7%, which translates to the effective yield rising as the distributions are both income and a return of capital. The firm is projecting close to 14% EBITDA growth and a 6% to 11% sector return.
Credit Suisse assumed coverage on 12 MLPs, and it had 3 downgrades and 1 upgrade. The target price was raised on 7 names and lowered on two names. Based upon the opportunity in the pullbacks, the firm raised its sector rating to Outperform from Neutral.
Access Midstream Partners L.P. (NYSE: ACMP) was started as Outperform with a $54 price target. The report said, “We derive our $54 target price using a three-stage distribution discount model (DDM). Our assumptions include a discount rate 8.5%, distribution CAGR of 12.7% over the first five years, ~6% over the following five years, and a terminal growth rate of 2%.”
EV Energy Partners L.P. (NASDAQ: EVEP) was started as Outperform with a really big upside price target of $57 for gains of more than 35% if the firm is correct.
Kinder Morgan Energy Partners L.P. (NYSE: KMP) was raised to Outperform from Neutral and the price target was raised to $97 from $95 in the call. The firm said that the KMP upgrade was “based on recent pullback in KMP units. Raising TP based on a 5.5% to 6% yield target, a 25 basis point premium to our target yield for the Alerian MLP Index of 6.0%.”
DCP Midstream Partners L.P. (NYSE: DPM) was started as Underperform but its target price was raised to $54 from $48 which is just under the price. The report said, “We derive our $54 target price using a three-stage distribution discount model (DDM), assuming a discount rate of 8.5%, a distribution CAGR of 5.6% over the first five years, 4.7% over the following five years, and a terminal growth rate of 1.5%.”
Exterran Partners L.P. (NASDAQ: EXLP) was started as Underperform with a target price that was raised to $29.50 from $28 but that is still almost 10% under the price now. The report said, “We believe EXLP’s ability to sustain low-to-mid single digit distribution growth are now fairly reflected in units. Given its current capex profile and depleting dropdown inventory, we view EXLP’s ability to accelerate distribution growth as unlikely.”
NuStar Energy L.P. (NYSE: NS) was started as Underperform with a $43 price target. The firm said, “While the likelihood for a distribution cut in the near-term remains low, 6.2x leverage and weak fundamentals for bunker fuel, liquids storage, petroleum product transportation, and asphalt mean longer-term risk to the distribution remains.”
Niska Gas Storage Partners LLC (NYSE: NKA) was started as Underperform with a serious downside price target of $11 per share. No notes were available in the preliminary report.
The following MLPs were started as Neutral, and as such we felt no need to elaborate on any great observations (or lack thereof) from the firm:
- BreitBurn Energy Partners L.P. (NASDAQ: BBEP)
- Linn Energy LLC (NASDAQ: LINE)
- LinnCo LLC (NASDAQ: LNCO)
- NuStar GP Holdings LLC (NYSE: NSH)
- Tesoro Logistics L.P. (NYSE: TLLP)
- Western Gas Partners L.P. (NYSE: WES)
Genesis Energy L.P. (NYSE: GEL) was downgraded to Neutral based on valuations being hit.
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