With everybody returning to Wall Street from the holidays, the focus is now squarely on 2017 and what makes sense. One thing that looks solid is the prospects for oil. While the halcyon days of 2014 and $100 a barrel should stay in the rear-view mirror, the prospects for a stay between $50 and $60 this year look good, and that bodes well for many producers, especially those out in the Permian and other top onshore shale areas.
A recent research report from Stifel is cautiously optimistic on the prospects for 2017, and the firm also feels that energy master limited partnership (MLP) yields are very favorable compared to other equity income classes like utilities. The report said in its overview”
The operating environment in general as domestic production stabilizes with a Healthier E&P customer appears to be the most noteworthy and positive trend For energy infrastructure. The specter of rising interests may challenge performance. Although our analysis minimizes our concerns. Cost of capital will continue to be a Focal point given the industry’s dependence on external funding and perpetual equity Issuance. Assets exposed to the NGL barrel, particularly ethane and LPG exports, should reap benefits in 2017.
These six companies made the Stifel Select List, and all are rated Buy.
Enterprise Products Partners
This is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) once again, despite the energy slump, recently raised its distribution 1%. The company maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating against some of the wilder swings of the commodities that it trades in.
One reason why many analysts may like the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above one times, making it a relatively less risky MLP. Its distributions have grown for several quarters, and last quarter Enterprise Products announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.405 per common unit, or $1.62 per unit on an annualized basis.
Investors receive a 6.0% distribution. The Stifel price target for the stock is $32, and the Wall Street consensus target is $31.88. Shares closed last Friday at $27.04.
Cone Midstream Partners
This company has had a great run off the lows last February but is still down from highs posted in 2014. 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 its sponsors’ 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. Its gathering assets comprise a network of 244 miles of gathering pipelines with an average daily throughput of approximately 1,099 Bcfe/d and 15 compression and dehydration facilities. It also operates two condensate-handling facilities with handling capacities of 2,500 Bbl/d each in Majorsville, Pennsylvania, and Moundsville, West Virginia, that provide condensate gathering, collection, separation and stabilization services. It also operates other partnership assets.
Unitholders receive a 5.64% distribution. Stifel has a $26 price target. The consensus figure is $23.90. Shares closed last Friday at $23.55.
Dominion Midstream Partners
This stock has solid upside potential and offers investors a good entry point now. Dominion Midstream Partners L.P. (NYSE: DM) is one of the nation’s largest producers and transporters of energy, with a portfolio of approximately 25,700 megawatts of generation, 12,200 miles of natural gas transmission, gathering and storage pipeline and 6,500 miles of electric transmission lines.
It operates one of the nation’s largest natural gas storage systems, with 933 billion cubic feet of storage capacity, and serves more than 5 million utility and retail energy customers in 14 states.
The company announced last month that it expanded the natural gas storage and distribution business through the acquisition of Questar Pipeline from Dominion Resources. The deal was valued at $1.725 billion, of which the partnership paid $823 million in cash and issued $167 million of common units and $300 million of convertible preferred units to Dominion. Moreover, the partnership Questar Pipeline’s outstanding debt of $435 million.
Investors receive a 3.35% distribution. The $32 Stifel price target is less than the consensus target of $33.30. Shares closed last at $29.55.
Dynagas LNG Partners
The company has continued to pay an outstanding distribution. Dynagas LNG Partners L.P. (NYSE: DLNG) operates in the seaborne transportation industry worldwide. The company owns and operates liquefied natural gas (LNG) vessels.
As of March 31, 2016, its fleet consisted of six LNG carriers, each of which has a carrying capacity of approximately 150,000 to 155,000 cubic meters. Dynagas GP LLC serves as the general partner of Dynagas LNG Partners.
With U.S. LNG exports expected to jump dramatically, this could be a solid play for aggressive income investors. The stock has seen some solid earnings estimate revision activity over the past month, and that suggests that Wall Street analysts are becoming a bit more bullish on the firm’s prospects in both the short and long term.
Investors receive a 10.58% distribution. Stifel set its price target at $18, and the consensus target is $16.94. Shares closed Friday at $15.98.
Hoegh LNG Partners
This high-yield company also makes good sense for income accounts. Hoegh LNG Partners L.P. (NYSE: HMLP) focuses on owning, operating and acquiring floating storage and regasification units (FSRUs), LNG carriers and other LNG infrastructure assets under long-term charters. As of March 31, 2016, it had a fleet of four FSRUs. Höegh LNG GP LLC is the general partner of the company.
The company posted solid third-quarter results, though operating income and net income were affected by unrealized gains on derivative instruments on the partnership’s share of equity in earnings of joint ventures in the third quarter of 2016, compared with unrealized losses for the third quarter of 2015.
The distribution for shareholders is 8.68%, and the Stifel price target is $22. The consensus target is $21.73. Shares closed last Friday at $19.
MPLX
This company reported very solid numbers but may be more off the radar for some investors. MPLX L.P. (NASDAQ: MPLX) is a diversified, growth-oriented MLP formed in 2012 by Marathon Petroleum to own, operate, develop and acquire midstream energy infrastructure assets. It is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of natural gas liquids; and the transportation and storage of crude oil and refined petroleum products.
The company made a very well timed and strategic purchase of MarkWest Energy last year for approximately $1.28 billion. The deal combined MarkWest, the second-largest processor of natural gas in the United States and largest processor and fractionator in the Marcellus and Utica shale plays, with MPLX. The combination created one of the largest MLPs, which is expected to generate a mid-20% compound annual distribution growth rate through 2019.
Unitholders receive a 5.95% distribution. The Stifel price target is $39. The consensus target is at $39.83, and shares closed last at $34.62.
Six top picks from the analysts at Stifel — for accounts with a degree of tolerance they all make good sense, especially with the prospects for steady to higher oil for 2017.
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