Energy
Credit Suisse Sees Top MLPs Raising Distributions (Dividends) with Earnings
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The master limited partnerships (MLPs) earnings season is getting underway with some of the top names set to report earnings imminently. The MLP research team at Credit Suisse expects numerous positive catalysts to emerge with the earnings from the top MLPs that will help to drive the sector through the rest of the year and into 2014.
The Alerian MLP index pulled back from the peak it reached on May 22, and has bounced from being down nearly 8% to currently 3% from the peak. The Cushing MLP index peaked on July 15, pulled back 7% and is currently 2.3% from its peak. This pullback in the MLP sector gives investors looking to buy the top names a good opportunity to start scaling in capital. For the stocks in their universe, the Credit Suisse team is looking for year-over-year distribution growth of 6% to 8%. They see EBITDA growth of 22% to 25%.
Here are the top names to buy in the Credit Suisse universe. Some of these stocks will report after the close on Wednesday. You often will see the terms of distributions and dividends interchanged in the MLP sector as investors treat these as yield-equivalents, but these are generally comprised of both income and a return of capital.
Kinder Morgan Energy Partners L.P. (NYSE: KMP) reports today after the closing bell. As the stock is one of the bellwether names in the MLP sector, this earnings report may be a harbinger of things to come for the rest of the group. The Credit Suisse price target for the stock is $97. The Thomson/First Call price target is posted at $91. The stock closed Tuesday at $79.77. Investors are paid a 6.7% distribution. Remember, MLP distributions may contain return of capital.
Kinder Morgan Inc. (NYSE: KMI) is another member of the family reporting earnings. Hedge Fund manager Leon Cooperman listed the Kinder Morgan companies as some of his top stock picks going forward. He pointed out in an interview on CNBC Tuesday, that stocks were extremely pricey and investors needed to look for value. The Credit Suisse price target for Kinder Morgan is $47. The consensus is at $42. Shareholders are paid a 4.5% distribution. Kinder Morgan closed Tuesday at $35.05.
El Paso Pipeline Partners L.P. (NYSE: EPB) is another top name in the Kinder Morgan family about to report. Kinder Morgan owns the general partner and 40% of the limited partnership units of the company. Investors are paid a solid 6.1% distribution. The Credit Suisse price target for the stock is $45 and the consensus figure is $43. El Paso closed Tuesday at $42.68.
Enterprise Products Partners L.P. (NYSE: EPD) will wait to report its third quarter-earnings until Halloween comes on October 31. Investors were very pleased when they company announced on Monday an increase in its distribution. Although the increase only amounted to 1.5%, it shows the company’s commitment to returning cash to shareholders. Investors are paid a 4.5% distribution. The Credit Suisse price target for the stock is $66. The consensus target is higher at $68.50. Enterprise closed Tuesday at $60.51.
EV Energy Partners L.P. (NASDAQ: EVEP) remains a top stock to buy at Credit Suisse. The company is slated to report earnings on November 4. Investors will have seen a lot of earnings come in by then, and trends will be showing up in EBITDA and distribution growth. Investors are p[aid an 8.1% distribution. The Credit Suisse target for the stock is $53, which is the highest on Wall Street. The consensus is at $50. EV partners closed Tuesday at $38.11.
Magellan Midstream Partners L.P. (NYSE: MMP) is another top name set to report earnings on Halloween. The company announced last week it is planning to increase the capacity of its Texas-based Longhorn crude oil pipeline. Moreover, in order to receive shipments for crude oil on the pipeline, the partnership is expected to manufacture a new origin that will be situated at Barnhart, Texas. Investors receive a 3.7% distribution. Credit Suisse has a $67 price objective, and the consensus number is at $60. Magellan closed Tuesday at $56.42.
MarkWest Energy Partners L.P. (NYSE: MWE) is another top stock that does not report until November 12. MarkWest has a leading presence in many unconventional gas plays, including the Marcellus Shale, Utica Shale, Huron/Berea Shale, Haynesville Shale, Woodford Shale and Granite Wash formation. Investors are paid a 4.8% distribution. Credit Suisse has an $85 price target for the stock. The consensus figure is placed at $79.25. The company closed Tuesday at $68.89.
Plains All American Pipeline L.P. (NYSE: PAA) will debut its gigantic IPO Wednesday of Plains GP Holdings L.P. (NYSE: PAGP), which was formed to pay dividends on behalf of the oil-and-gas partnership. The company raised $2.82 billion in its U.S. initial public offering, pricing the shares at $22, which was the low end of the range. The Credit Suisse price target for the parent company is $64. The consensus target for this top stock to buy is $61.50. Plains closed Tuesday at $50.45.
Analysts and investors alike will keep a close eye on any announcement regarding distributions. There has been some concern raised recently on Wall Street that some of the high-paying MLPs may be forced to cut their distributions. Some fear contract renegotiations, while other see lower commodity price affecting payouts. We recently wrote about some of the names that may be forced to lower their distributions.
Credit Suisse expects the sector leaders to post solid numbers and have positive forward commentary. Income investors concerned about low yields on government and investment grade debt can still look to the quality MLPs as a source of solid and perhaps rising income.
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