[cnxvideo id=”506325″ placement=”ros”]Despite a few wrong calls from Wall Street back in February, most felt that the low in oil pricing at $26 was not sustainable, and that while $100 barrel was years off, a rally back to higher prices was inevitable. The 75% rally off the lows took some anxiety out of the markets, and for the most part first-quarter numbers came in good as most companies beat Wall Street estimates. Going forward, investors want to look at the quality stocks that focused on structural and balance sheet strength.
A new Credit Suisse research piece notes that first-quarter earnings beats and in line reports vastly outnumbered the misses. Growth capital expenditures and full-year guidance were mostly held at earlier established levels. The report also cited successful capital market activity as a positive, as many companies had successful secondary offerings to bolster cash and liquidity.
Credit Suisse focused on four stocks. Oddly enough, two of them actually missed first-quarter numbers but remain favorites.
EQT Midstream Partners
This company has remained a top midstream play for investors at Credit Suisse. EQT Midstream Partners L.P. (NYSE: EQM) is a growth-oriented partnership formed by EQT Corporation 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. It also owns more than 1,600 miles of high- and low-pressure gathering lines.
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The company had a secondary offering late last year that some thought was ill-timed and dilutive, especially since the stock was down about 15% at the time. The bottom line is at least the company was able to go to the capital market for additional funding and should be set for the foreseeable future. Credit Suisse points out the numerous positives for the company, in addition to the fact that the shares have lacked some of the big moves other companies have made this year.
EQT investors receive a 3.94% distribution. The Credit Suisse price target is $109. The Thomson/First Call consensus target is lower at $91.54. Shares closed Wednesday at $75.73.
Genesis Energy
This is a company that actually missed first quarter numbers but remains a Credit Suisse and Wall Street favorite. Genesis Energy L.P. (NYSE: GEL) operates in the midstream segment of the industry in the Gulf Coast region of the United States. Its Onshore Pipeline Transportation segment transports crude oil and carbon dioxide (CO2). This segment owns four onshore crude oil pipeline systems with approximately 500 miles of pipe located primarily in Alabama, Florida, Louisiana, Mississippi, and Texas, as well as two CO2 pipelines with approximately 270 miles of pipe.
The company’s Offshore Pipeline Transportation segment transports crude oil and owns various offshore crude oil pipeline systems with approximately 1,200 miles of pipe located offshore in the Gulf of Mexico.
The Refinery Services segment processes high sulfur gas streams to remove sulfur for refineries. It provides services to 10 refining operations located primarily in Texas, Louisiana, Arkansas, Oklahoma and Utah, and it sells the by-product sodium hydrosulfide and caustic soda to industrial and commercial companies involved in the mining of copper, molybdenum and other base metals, as well as in the production of pulp and paper.
The Marine Transportation segment offers waterborne transportation of petroleum products and crude oil in North America. It owns fleet of 71 barges, with a combined transportation capacity of 2.6 million barrels, and 33 push/tow boats. Its Supply and Logistics segment provides services primarily to Gulf Coast oil and gas producers and refineries through a combination of purchasing, transporting, storing, blending and marketing of crude oil and refined products, such as fuel oil, asphalt and other heavy refined products. This segment operates a suite of approximately 300 trucks, 400 trailers, 562 rail cars and terminals and tankage with 2.9 million barrels of storage capacity in various locations along the Gulf Coast.
Genesis shareholders receive an outstanding 7.91% distribution. Credit Suisse has a $46 price target, and the consensus price objective is $38.33. The shares closed Wednesday at $34.
Tallgrass Energy Partners
This is another favorite at Credit Suisse that missed on first quarter earnings estimates. Tallgrass Energy Partners L.P. (NYSE: TEP) provides crude oil transportation to customers in Wyoming, Colorado and the surrounding regions through Pony Express, which owns the Pony Express System, a crude oil pipeline commencing in Guernsey, Wyo., and terminating in Cushing, Okla., that includes a lateral in northeast Colorado that commences in Weld County and interconnects with the pipeline just east of Sterling.
In addition, the company provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States through the Tallgrass Interstate Gas Transmission system, a FERC-regulated natural gas transportation and storage system located in Colorado, Kansas, Missouri, Nebraska and Wyoming, and the Trailblazer Pipeline system, a FERC-regulated natural gas pipeline system extending from the Colorado and Wyoming border to Beatrice, Neb.
Credit Suisse cites the defensive nature of the company as a positive, and the company announced recently that a wholly owned subsidiary had closed on the purchase of a 25% membership interest in Rockies Express Pipeline from a unit of Sempra U.S. Gas and Power for cash consideration of approximately $440 million.
Investors receive a 6.36% distribution. The $52 Credit Suisse price target compares with the consensus target of $47.36. The shares closed Wednesday at $44.36.
Phillips 66 Partners
This is the other top pick solid sponsorship name to buy now at Credit Suisse. Phillips 66 Partners L.P. (NYSE: PSXP) is a growth-oriented master limited partnership 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.
Following a successful equity offering, Credit Suisse likes the company and the entry point, and considers it a best-in-class drop-down story. The company recently announced it will buy a pipeline and the remaining 75% interest in other assets from Phillips 66 in a $775 million deal. The Houston-based partnership funded the deal with a combination of newly issued units to Phillips 66 and the assumption of notes payable to the company as well.
Phillips 66 Partners unit holders receive a 3.66% distribution. The Credit Suisse price target for the company is $84, while the consensus is much lower at $70.38. Shares closed Wednesday at $52.50.
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While not the highest yielding MLPs, these are solid plays for investors looking to be in the sector, but not wanting to take undue risk. They all offer outstanding management and should have a clear path to continue to offer solid gains for investors. Remember that MLP distributions can contain return of principal.
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