The Credit Suisse team points out that during the same period that the Alerian index was getting pounded, to the tune of 36%, the drop-down MLPs only declined 17%. These are energy companies that periodically “drop down” midstream assets like pipelines and such to their MLPs.
With new coverage on board, Credit Suisse is recommending investors buy the top companies now. We highlight two top picks and two with the best distributions. Credit Suisse cites that when spreads widen to more than 700 basis points, or 7% from the 10-year U.S. Treasury bond, which happened in the last week in September, and has only 3% of the time in the past 22 years, and spreads remain above 550 basis points, gains are positive 100% of the time. The current spread is 572 basis points.
EQT Midstream Partners
This company is a top pick now at Credit Suisse. EQT Midstream Partners L.P. (NYSE: EQM) is a growth-oriented partnership formed by EQT Corp. to own, operate, acquire and develop midstream assets in the Appalachian Basin. The partnership provides midstream services to EQT and third-party companies through its strategically located transmission, storage and gathering systems that service the Marcellus and Utica regions. The partnership also owns 700 miles and operates an additional 200 miles of FERC-regulated interstate pipelines, and it also owns more than 1,600 miles of high-pressure and low-pressure gathering lines.
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The company posted solid earnings across the board last week, and earnings growth from operating margin improvements, as well as one-time items, helped to solidly hold up the top and bottom line.
EQT investors are paid a 3.97% distribution. The Credit Suisse price target is an eye-popping $109. The Thomson/First Call consensus price target is $100.33. Shares closed Tuesday at $67.93.
Phillips 66 Partners
This is the other top pick to buy now at Credit Suisse. Phillips 66 Partners L.P. (NYSE: PSXP) is a growth-oriented MLP formed by Phillips 66 to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum product and natural gas liquids pipelines and terminals and other transportation and midstream assets.
The company recently declared a third-quarter 2015 cash distribution of $0.428 per common unit. The distribution represents a 7% increase over the previous quarterly distribution of $0.40 per unit and a 35% increase over third-quarter 2014. The distribution increase is consistent with previous guidance that the partnership expects a 30% compound annual distribution growth rate from the last quarter of 2013 through 2018. That is the kind of consistent increases Credit Suisse applauds.
Phillips 66 Partners unitholders are paid a 3.19% distribution. The Credit Suisse price target is $81, while the consensus target is lower at $77.13. Shares closed Tuesday at $53.71.
Exterran Partners
This is one of the sector’s higher yielding companies and a favorite at Credit Suisse now. Exterran Partners L.P. (NYSE: EXLP) provides natural gas contract operations services to customers in the United States. Its contract operations services primarily include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas compression services to its customers. The company serves companies engaged in various aspects of the oil and natural gas industry, including natural gas producers, processors, gatherers, transporters and storage providers.
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This week the company announced a cash distribution of $0.5725 per limited partner unit, or $2.29 on an annualized basis. The distribution to be paid in November 2015 is $0.005 higher than the second-quarter 2015 distribution of $0.5675 per limited partner unit and $0.02 higher than the third-quarter 2014 distribution of $0.5525. Again, another top pick raising the distribution to unitholders. Exterran also recently released robust preliminary third-quarter financial performance results, establishing solid positioning when other energy companies are just trying to survive.
Exterran investors are paid an outstanding 11.96% distribution. The Credit Suisse price target is $27, and the consensus price objective is $26.38. The shares closed Tuesday at $19.14.
VTTI Energy
This rounds out four of the Credit Suisse top picks in the MLP sector to buy now. VTTI Energy Partners L.P. (NYSE: VTTI) is a fee-based, growth-oriented limited partnership, formed to own, operate, develop and acquire refined petroleum product and crude oil terminaling and related energy infrastructure assets on a global scale. Its assets include interests in a broad-based portfolio of six terminals that are strategically located in key energy hubs throughout the world, with a combined total storage capacity of 35.5 million barrels/5.6 million m3 capacity.
VTTI Energy has actually seen Wall Street estimates rise in September for the current fiscal year by 35.3%. The fee-based status helps to smooth out earnings and makes the company one of the top picks in the industry.
VTTI shareholders are paid a very solid 5.65% distribution. The Credit Suisse price target is $31, and the consensus target is right in line at $31.50. Shares closed Tuesday at $19.70.
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We like to remind readers that distributions from MLPs can contain return of principal. All these Credit Suisse top companies to buy make good sense, especially with crude selling off big this week and offering investors even better purchase entry points.
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