The companies that Credit Suisse has on watch are: Sunoco Logistics Partners L.P. (NYSE: SXL), Sunoco L.P. (NYSE: SUN), Magellan Midstream Partners L.P. (NYSE: MMP), ONEOK Partners L.P. (NYSE: OKS) and the Energy Transfer Family. The brokerage firm summed up its upgrades briefly as Sunoco Logistics had a great quarter, Magellan also beat and raised guidance, and ONEOK beat on high volume.
Energy Transfer Partners L.P. (NYSE: ETP), main driver of Energy Transfer Equity L.P. (NYSE: ETE) cash flows, posted a beat and is de-levering the balance sheet. Management highlighted various growth projects in execution: Delaware Basin Crude Gathering and Bayou Bridge (both new since the first quarter), Revolution, Bakken, Rover, Lone Star Frac IV, pipes to Mexico, REM II and Alamo cryo plants and Utica Ohio River expansion.
Sunoco Logistics posted a strong quarter, beating and posting 1.5-times coverage as “red-bar” results rebounded from a weak first quarter. Long term, the outlook continues to look unchanged despite the commodity price weakness.
Sunoco had a decent quarter but Credit Suisse expects distribution growth to tighten in the future. The drops of the balance 68% in Sunoco LLC and the 440 retail stores of Sunoco are expected to close in 2016.
After rolling it all up to Energy Trade Equity, Credit Suisse continues to see very strong visibility on distant growth helped by the large accretion coming from the combined Energy Transfer, large backlog of projects underway across the family and ultimately the FID on Lake Charles augmented by its $2 billion unit buyback program.
Magellan reiterated the long-term fee-based nature of its assets but noted that one would be “hard-pressed” to argue for more long-haul crude pipelines in the near future. Management said the next build-out cycle is likely to be related to marine infrastructure to support exports. Management also noted that Magellan would “gladly” build another splitter if customers expressed sufficient interest, though securing commitments right now is a very tough market. In terms of M&A, the company said assets on the market are too expensive but would not rule out a corporate buyout under the right conditions.
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According to Credit Suisse:
With second quarter results coming in ahead of expectations and 2015 EBITDA and discounted cash flow (DCF) guidance reiterated we believe the worst is over for ONEOK. Management expects to continue to see volumes increase into 2016, led mainly by the Williston, at which point growth projects will begin to come online including the 200 MMcf/d Lonesome Creek plant and 300 MMcf/d of gathering capacity which will further strengthen distribution coverage and eventually allow resumption of suspended projects (Bronco, Demicks Lake, Knox). Our 2015 EBITDA and DCF estimates increase 3% and 4% to $1,606mm and $1,153mm, though still below guidance midpoints of $1,620mm EBITDA and $1,170 million DCF. We expect coverage to stabilize around 1.05x for the remainder of the year and distribution growth to resume in the second quarter of 2016.
As a result the brokerage firm made calls on these MLPs:
- Sunoco Logistics was upgraded to an Outperform rating with a $48 price target which implies an over 50% total return.
- Magellan was upgraded to an Outperform rating but the firm trimmed its price target to $89 based on more conservative distribution growth assumptions but with over 45%. The firm lowered 2015 to 2018 EPU estimates to $3.18/$3.63/$4.01/$4.10 from $3.33/$3.69/$4.08/$4.16 respectively.
- ONEOK was upgraded to an Outperform rating with a $45 price target. Together with $3.18 of distributions one year out, the target price implies a yield of 7.1%, with a 53% total return potential. The firm raised its 2015 2018 EPU estimates to $1.81/$2.03/$2.00/$1.74 from $1.55/$1.87/$1.78/$1.53 respectively.
- Energy Transfer Equity has an Outperform rating but its price target was cut to $38 from $39.
- Energy Transfer Partners has an Outperform rating but its price target was cut to $67 from $77.
Units of Magellan were up 6.5% to $68.19 on a Monday afternoon. It has a consensus analyst price target of $86.81 and a 52-week trading range of $61.37 to $90.08.
ONEOK units were up 2.2%, at $31.92 in a 52-week trading range of $29.50 to $59.67. Its consensus analyst price target is $39.69.
Sunoco Logistics units were up 3.9% to $34.66. The consensus analyst price target is $49.20 and the 52-week trading range is $32.56 to $52.47.
Units of Sunoco were up 3.8%, at $37.25 in its 52-week range of $35.10 to $59.99. The consensus price target is $53.69.
Units of Energy Transfer Equity were up 3.7%, at $28.39 in its 52-week range of $22.94 to $35.44. The consensus price target is $41.14.
Energy Transfer Partners units were up 0.3% to $47.00. The consensus analyst price target is $64.73. The 52-week trading range is $44.76 to $69.66.
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