Credit Suisse Adjusts Ratings On Nine MLP Stocks

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Credit Suisse’s John D. Edwards mentioned that against the backdrop of a severe downturn, “the viability of the MLP model as well as valuations have faced significant challenge.”

The models were earlier considered as robust enough to weather industry cycles. Moreover, given the long-dated nature of fee-based contracts, pipeline and processing plant cash flows were considered to be insulated to some extent from the industry cycle. Analyst John Edwards commented, however, that now these assumptions have been challenged by the prolonged downturn.

Magellan Midstream

Magellan Midstream Partners, L.P. MMP has been downgraded from Neutral to Underperform, and the prior price target of $70 has been suspended. Edwards mentioned that the company had outperformed the MLP sector since the beginning of the commodity price downturn and year-to-date.

The analyst said, “We believe units fairly valued and MMP presents a target for shorts once crude finds a floor and begins to recover.”

Oneok Partners

Edwards downgraded Oneok Partners LP OKS from Neutral to Underperform, while raising the price target from $32 to $33. The units have recovered almost 50 percent from lows reached in February, with investors rewarding Oneok for reiterating its guidance, fee-based margin expansion and expected benefit from potential ethane recovery.

“We believe valuation is stretched…We believe valuation is rich relative to peers with similar commodity exposure and counterparty risk. Upside is limited with a commodity recovery and downside risk remains with any further deterioration of commodity prices,” the Credit Suisse report noted.

Enterprise Products  

Enterprise Products Partners L.P. EPD has been downgraded from Outperform to Neutral. Edwards said that the company continues to be “a bellwether in the industry,” with an expansive footprint, solid distribution coverage and export-centric growth backlog.

Although Enterprise Products Partners continues to be poised to withstand any further declines in commodity prices, the benefits are mostly priced in. “Better value can be found in oversold names particularly if commodity prices recover more rapidly and hedge funds may view EPD units a convenient short given the high liquidity in its units,” the analyst wrote.

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Enable Midstream

Edwards upgraded Enable Midstream Partners LP ENBL from Neutral to Outperform, saying that the company had lagged the sector due to its commodity exposure of 10 percent and volumetric risk of 30 percent.

“Post-4Q15 earnings we felt incrementally more positive on the name given cap ex reduction of 66% from prior guidance, CNP preferred purchase of $363mm allowing debt reduction, no equity capital market needs for 2016 and minimal re-contracting risk,” the report mentioned.

Spectra Energy

The analyst downgraded Spectra Energy Partners, LP SEP from Outperform to Neutral, while reducing the price target from $56 to $54. Edwards mentioned that the company had outperformed over 2015 and year-to-date in 2016, and that the downgrade was based on valuation, rather than lack of quality.

Other Rating Changes

Credit downgraded the ratings for the following from Outperform to Neutral:

  • Antero Midstream Partners LP AM
  • Enbridge Energy Partners, L.P. EEP, with price target reduced from $24 to $23
  • VTTI Energy Partners LP VTTI
  • Western Gas Partners, LP WES, with price target reduced from $56 to $53
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Posted In: Analyst ColorLong IdeasShort IdeasUpgradesDowngradesPrice TargetAnalyst RatingsTrading IdeasCredit SuisseJohn D. Edwards
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