Energy

Credit Suisse Has 5 Top Pick Energy MLPs for 2017

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Top pundits and prognosticators on Wall Street thought it was virtually impossible to ever get the Organization of the Petroleum Exporting Countries and non-OPEC oil-producing nations to agree on a production cut, but they did, and with good reason. Many of the OPEC oil-producing nations located in the Middle East have one major export, and only one, and that is oil. With prices getting hammered into the mid-$20s almost a year ago, their government balance sheets took a beating.

The recent OPEC agreement in Vienna to curtail production, and the ability for the OPEC nations to get non-member countries to go along, is huge for oil prices. While the days of $100 per barrel will remain in the rear-view mirror, $50 or so levels look like the new normal. Credit Suisse is out with its five top pick stocks for 2017, and they all make sense for investors looking to add master limited partnerships (MLPs) to their portfolios now.

Here are the five top picks to Buy at Credit Suisse in order of their ranking.

EQT Midstream Partners

This company has remained a top midstream play across Wall Street. 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.

The company announced this week it plans to drill 119 wells in the Marcellus Shale play next year, with 76 in Pennsylvania and the remainder in West Virginia. It also plans to drill 81 Upper Devonian wells, which will be limited to co-development on Marcellus pads in Pennsylvania, and seven deep Utica exploratory wells. The company also announced 2017 capital expenditures forecast of $1.5 billion and said almost all of it, or $1.3 billion, is for well development. It did not include business development and land acquisitions.

Investors receive a 4.53% distribution. The Credit Suisse price target is a whopping $109, while the Wall Street consensus price objective is$80.74. Shares closed yesterday at $72.

Tallgrass Energy Partners

This is another favorite at Credit Suisse and comes in as the second top pick. 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, Wyoming, and terminating in Cushing, Oklahoma, 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, Nebraska.

Investors receive a 6.88% distribution. The $61 Credit Suisse price target is well above the consensus target of $53.73. Shares closed Tuesday at $46.23.

Boardwalk Pipeline Partners

This company comes in at number three, and while it pays a lower distribution, it may have bigger upside potential. Boardwalk Pipeline Partners L.P. (NYSE: BWP) provides transportation, storage, gathering and processing services for natural gas, natural gas liquids (NGLs) and other hydrocarbons in the United States.

The company operates interstate natural gas and NGLs pipeline systems, including integrated storage facilities. Its pipeline systems contain approximately 14,090 interconnected natural gas pipelines, directly serving customers in 13 states and indirectly serving customers throughout the northeastern and southeastern United States through various interconnections with unaffiliated pipelines.

The company also owns and operates approximately 435 miles of NGLs pipelines serving customers in Louisiana and Texas. In addition, it has underground storage caverns having aggregate capacity of approximately 205.0 billion cubic feet of working natural gas and 24.0 million barrels of NGLs. The company serves producers of natural gas, local distribution companies, marketers, electric power generators, industrial users and interstate and intrastate pipelines.

Investors receive a 2.26% distribution. Credit Suisse has a $23 price objective. The consensus target is $19.73. Shares closed Tuesday at $17.69.

Kinder Morgan

This is one of the most recommended companies in the sector on Wall Street and looks to reclaim its preeminent position. Kinder Morgan Inc. (NYSE: KMI) is one of the largest energy midstream companies, with diverse operations across the midstream energy value chain.

The Natural Gas Pipelines segment owns and operates interstate and intrastate natural gas pipeline and storage systems; natural gas and crude oil gathering systems, and natural gas processing and treating facilities; natural gas liquids fractionation facilities and transportation systems; and liquefied natural gas facilities.

The CO2 segment produces, transports and markets CO2 for use in enhanced oil recovery projects, and it owns interests in oil-producing fields, gas processing plants and crude oil pipelines in the Permian Basin region of West Texas.

The Terminals segment owns and operates liquids and bulk terminals that transload and store refined petroleum products, crude oil and condensate, as well as bulk products, including coal, petroleum coke, cement, alumina, salt and other bulk chemicals. It also owns and operates tankers.

The Products Pipelines segment owns and operates refined petroleum products and crude oil and condensate pipelines, as well as associated product terminals and petroleum pipeline transmix facilities.

Investors are paid a 2.35% dividend. The $27 Credit Suisse price target compares with the consensus estimate of $25.22. The stock closed at $21.34.

Antero Midstream

This company rounds out the top five picks at Credit Suisse. Antero Midstream Partners L.P. (NYSE: AM) owns, operates and develops midstream energy assets. Its assets include 8-inch, 12-inch, 16-inch and 20-inch high and low pressure gathering pipelines and compressor stations that collect natural gas and oil and condensate from wells in the Marcellus Shale in West Virginia and the Utica Shale in Ohio, as well as water handling and treatment assets.

As of December 31, 2015, the company’s Marcellus and Utica Shale gathering systems comprised 182 miles and 110 miles of pipelines, and the water handling systems include 184 miles and 75 miles of pipelines.

The provider of water and other services for fracking operations is 62% owned by oil and gas exploration company Antero Resources. Antero Midstream operates its parent’s pipelines and compressor stations and is expanding its presence among fracking operations. It operates mostly in the southwestern core of the Marcellus Shale field in northwest West Virginia and the core of the Utica Shale field in southern Ohio. More importantly, as a supplier/distributor, it’s shielded in large part from the volatility involved with the natural gas extraction business.

Investors receive a 3.67% distribution. The Credit Suisse price target is for the stock is $40, and the consensus target is $35.61. The shares closed yesterday at $28.34.

While these are not the highest yielding MLPs, they all have some serious upside to the Credit Suisse target prices. Investors should remember that MLP distributions may contain return of capital.

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