The Deutsche Bank team stresses that this infrastructure need could provide a nice tailwind. They see exploration and production companies working to connect their production to demand centers, utilities looking for dependable fuel sources and natural gas have become a bigger source, downstream players sourcing advantaged feedstock, and export demand, which could increase with changes in current law.
We screened the Deutsche Bank list for high-profile companies that have outstanding upside and dependable distributions. It is important to note that MLP distributions may contain return of capital.
Energy Transfer Partners
This stock has been mauled and is offering investors a top-quality distribution. Energy Transfer Partners L.P. (NYSE: ETP). The company currently owns and operates approximately 35,000 miles of natural gas and natural gas liquids (NGLs) pipelines. ETP 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 is involved in the operation of retail fuel units and 150 convenience stores.
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This top MLP sits almost 20% off its peak, and while it is trading at a substantial yield with high single-digit distribution growth the next few years, that makes this company very undervalued.
Energy Transfer shareholders are paid an outstanding 7.15% distribution. The Deutsche Bank price target is $67. The Thomson/First Call consensus target is lower at $70.50. Shares closed Tuesday at $56.76.
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, terminalling, 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.
Plains 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.
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The company posted a solid first-quarter earnings beat, but management guided down expectations due to potential currency headwinds, and logistic and margins could suffer from high current crude inventories.
Investors are paid a very sizable 5.7% distribution. The Deutsche Bank price target is $54, and the consensus target is higher at $58.65. Shares closed Tuesday at $49.59.
Kinder Morgan
No longer technically an MLP, this one is still a top pick at Deutsche Bank for clients to buy now, and it is also one of the most recommended in the sector on Wall Street. Kinder Morgan Inc. (NYSE: KMI) announced last fall the acquisition of all of Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners in a series of transactions. The merger plan was comprised of $40 billion in parent-company equity, $4 billion in cash and $27 billion in assumed debt. Some shareholders were opposed to the move, but many on Wall Street saw it as a brilliant move.
In a recent interview, Richard Kinder, the respected leader of the company, said that mergers and acquisitions could be in store as prices have become increasingly opportunistic. He said Kinder Morgan wouldn’t be making any foolish buys, but that tremendous opportunity could lie in Mexico in the pipeline system there, where the company already has one pipeline.
Kinder Morgan shareholders are paid a solid 4.48% dividend. The Deutsche Bank price target for the iconic industry giant is $49, and the consensus target is $47.69. Kinder Morgan closed Tuesday at $42.86 a share.
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MarkWest Energy Partners
This is a solid MLP to buy, and it has been a recent candidate in the buyout chatter around Wall Street. MarkWest Energy Partners L.P. (NYSE: MWE) owns and operates midstream services related businesses. MarkWest has a leading presence in many natural gas resource plays, including the Marcellus Shale, Utica Shale, Huron/Berea Shale, Haynesville Shale, Woodford Shale and Granite Wash formation, where it provides midstream services to its producer customers.
The company reported lower-than-expected first-quarter 2015 results due to lower NGL sales volumes in the Gulf Coast and fractionated volumes in the Northeast region. The negatives are partially offset by increased natural gas gathering and processing volumes in the Marcellus area.
The Deutsche Bank team acknowledges commodity pricing and equity issuance could pressure the company near term. They also point out that the company has outstanding interconnectivity to takeaway capacity, very solid regional expertise and strong producer relationships. They, like others, think the stock is a buyout candidate as well.
MarkWest unitholders are paid a 5.48% distribution. The Deutsche Bank’s price objective is $76, and the consensus is at $74.71. Shares closed Tuesday at $66.69.
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While Deutsche Bank had many other top names to buy in its initiation of the sector, we stuck with the higher profile names with the solid balance sheets. The oil downturn can go either way going forward and taking chances now does not make sense.
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