Raymond James Says Top MLPs May Be Poised for a Monster Year

By Lee Jackson Updated Jan 11, 12:30PM EST · Published Jan 16, 12:02PM EST

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Raymond James Says Top MLPs May Be Poised for a Monster Year — © Thinkstock

Energy investors had a brutal fourth quarter of 2018. Of course, the lower crude oil prices dropped, the more the top stocks got hit. Even though many of the top midstream energy master limited partnerships are just in the moving and storage business, they got hit hard as well.

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The good news for investors is that the AMZ Alerian index, which tracks the industry, is up 10% already in 2019. In a new report, Raymond James analysts think the industry has plenty of upside going forward:

Fundamentals are improving and resilient … structural issues receding: Expect solid (15-25%+) bounce-back in midstream equities in 2019. Stocks have already bounced in 2019, but we think still-attractive valuations and resilient fundamental drivers carries the group higher.

Eight companies are listed as the top picks at Raymond James, we focused on four that are the higher yielding of the group, and all are rated Strong Buy.

Enterprise Products Partners

This is a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) is the largest publicly traded master limited partnership (MLP), and its midstream energy services include gathering, processing, transportation and storage of natural gas, natural gas liquids (NGLs) fractionation, import and export terminaling, and offshore production platform services.

One reason why many analysts may like the stock might be its distribution coverage ratio. That ratio is well above one-times, making it relatively less risky among its peers. The company’s distributions have grown for several quarters, and last year Enterprise Products announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.43 per common unit, or $1.72 per unit on an annualized basis.

Investors receive a 6.36% distribution. The Raymond James price target for the shares is $35 and the Wall Street consensus target is $33.24. The stock closed Monday’s trading at $27.20 per share.

MPLX

This company has reported very solid numbers over the past year 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 NGLs; and the transportation and storage of crude oil and refined petroleum products.

Investors receive a 7.74% distribution. Raymond James has a $45 price target, and the consensus target is $41.53. Shares closed at $32.94 on Monday.

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ONEOK

The volatile price of natural gas over the past year has weighed some on this top energy company. ONEOK Inc. (NYSE: OKE) primarily engages in natural gas transportation, storage and natural gas and NGLs gathering, processing and fractionation in the Bakken, Mid-Continent and Permian. The company recently closed the roll-up of its underlying MLP, ONEOK Partners.

The company has a strong presence in the Oklahoma SCOOP/STACK (NGL gathering/takeaway system, gathering and processing), the Williston Basin (gathering and processing, NGL takeaway) and the Permian Basin (NGL gathering, NGL takeaway, natural gas takeaway), which the Raymond James team feels provides high-return growth opportunities.

Many on Wall Street remain very positive on the company’s primarily fee-based earnings, which account for 90% of the total earnings.

Investors receive a 5.76% dividend. The $72 Raymond James price objective compares with the consensus target price of $70.71 and the most recent close at $59.37.

Targa Resources

This top energy MLP has had a string of positives lately. Targa Resources Corp (NYSE: TRGP) is a leading provider of midstream services and is one of the largest independent midstream energy companies in North America. Targa owns, operates, acquires and develops a diversified portfolio of complementary midstream energy assets.

The company is primarily engaged in the business of gathering, compressing, treating, processing and selling natural gas; storing, fractionating, treating, transporting and selling NGLs and related products, including services to liquefied petroleum gas exporters; gathering, storing and terminaling crude oil; storing, terminaling and selling refined petroleum products.

Targa Resources has one of the premier asset positions in the Permian basin. With solid management, a strong balance sheet and attractive exposure to some of the most attractive U.S. energy basins, it remains a top pick across Wall Street.

Investors receive an 8.69% distribution. The Raymond James price objective is $64. The consensus target price is $58.45, and shares closed Monday at $41.90.

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While most exploration and production stocks have been hammered, the midstream companies have held up much better. Despite a solid start to 2019, all these top companies still offer investors cheap valuations and very solid entry points to buy shares.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.