A new report from John Edwards and the top-notch Credit Suisse research team points to three stocks in the industry they feel are the most undervalued after everything is said and done. These three may hold a ton of upside for patient investors. We remind our readers that MLP distributions may contain return of capital.
Cone Midstream Partners
This stock has been mauled despite the company posting results that were generally in line with estimates. Cone Midstream Partners L.P. (NYSE: CNNX) is a growth-oriented MLP recently formed by CONSOL Energy and Noble Energy to own, operate, develop and acquire natural gas gathering and other midstream energy assets to service production in the Marcellus Shale in Pennsylvania and West Virginia. The company’s assets include natural gas gathering pipelines and compression and dehydration facilities, as well as condensate gathering, collection, separation and stabilization facilities.
While reporting generally in line numbers and staying with guidance, the stock has been hit to the tune of 25% this year. The Credit Suisse team pointed to the fact that management also reiterated 15% to 20% annual distribution guidance the next five years.
Unitholders in this MLP are paid a solid 4.70% distribution. The Credit Suisse price target is $32. The Thomson/First Call consensus price target is $24.78. Shares closed on Tuesday at $18.55.
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Energy Transfer Partners
This stock also has been mauled and is offering investors a top-quality distribution. Energy Transfer Partners L.P. (NYSE: ETP) currently owns and operates approximately 35,000 miles of natural gas and natural gas liquids (NGLs) pipelines. It also owns 100% of Panhandle Eastern Pipe Line (the successor of Southern Union) and a 70% interest in Lone Star NGL, a joint venture that owns and operates NGLs storage, fractionation and transportation assets.
Sunoco, an affiliate of the company, recently purchased eight Pico convenience stores in South Central Texas. Sunoco is the MLP that mainly supplies motor fuel to independent dealers, stores, distributors and commercial customers. Apart from its distribution business, the partnership also involves in the operation of retail fuel units and 150 convenience stores.
The Credit Suisse team points to the simple fact that this top MLP sits 20% off its peak. In addition, it is trading at a substantial yield with high single-digit distribution growth the next few years, which makes this company very undervalued.
Energy Transfer Partners shareholders are paid an outstanding 7.15% distribution. The Credit Suisse price target is set at $77. The consensus target is lower at $70.50, and shares closed Tuesday at $56.29.
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Plains All American Pipeline
This is another one of the top stocks on Wall Street that has had the power to withstand the downturn. Plains All American Pipeline L.P. (NYSE: PAA) owns and operates midstream energy infrastructure and provides logistics services for crude oil, NGLs, natural gas and refined products. The company owns an extensive network of pipeline transportation, terminaling, storage and gathering assets in key crude oil and NGL-producing basins and transportation corridors and at major market hubs in the United States and Canada. On average, Plains All American handles over 4.1 million barrels per day of crude oil and NGL on its pipelines.
It also has one of the largest storage asset bases, with over 120 million barrels of liquids storage capacity at the three major hubs located around the country in Cushing, Okla.; Midland, Texas; and Patoka, Ill.
The company posted a solid first-quarter earnings beat, but management guided down expectations due to potential currency headwinds and said that logistic and margins could suffer from high current crude inventories. This is a forward scenario the Credit Suisse team does not seem concerned about.
Investors are paid a very sizable 5.72% distribution. The Credit Suisse price target is $66, and the consensus target is lower at $58.78. Shares closed Tuesday at $48.09 apiece.
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Despite the Credit Suisse optimism, they hedge that a little by making most of the firm’s top picks for clients to buy true industry giants with little chance of failure. With a very pricey market and a volatile energy sector, that is probably excellent advice right now. These value buys could be among the best picks going forward.
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