Genesis Hikes Cash Distribution - Analyst Blog

Houston-based partnership Genesis Energy LP (GEL) raised its fourth quarter 2010 cash distribution by 3.2% sequentially and 11.1% year over year to 40 cents per unit (or $1.60 per unit annualized). The new distribution – payable on February 14 to unitholders of record as on February 2, 2011 – is the twenty-second consecutive quarterly distribution increase by the pipeline operator.

Genesis Energy LP is a master limited partnership (“MLP”) that operates crude oil pipelines and is an independent gatherer and marketer of crude oil in North America, with operations concentrated in Texas, Louisiana, Alabama, Florida, Mississippi and New Mexico. Genesis engages in four business segments: Pipeline Transportation, Refinery Services, Supply and Logistics, and Industrial Gases.

Genesis Energy's announced distribution hike is in sync with its goal of delivering disciplined growth to unitholders. The partnership boasts of a consistent and improving financial policy with high distribution coverage.

Additionally, we believe that the recent elimination of the general partner incentive distribution rights (“IDRs”) will enable Genesis to grow its distribution at a higher rate and provide more cash for acquisitions, maintenance, etc., thereby effectively decreasing the cost of capital.

However, this also means that the distribution coverage cushion is not there now and there is greater execution risk for the partnership. We alsoremain concerned by the uncertain macro environment, which, coupled with reduced access to the credit markets, have led to lower spending by consumers and businesses on transportation fuels. This translates into less volume for energy infrastructure operators like Genesis, cutting away at its cash flows.

Genesis' recently reported weaker-than-expected third quarter results (earnings per unit of 28 cents, below the Zacks Consensus Estimate of 30 cents) add to the cautious sentiment.

As such, we are comfortable with Genesis Energy's current Zacks #3 Rank, which translates into a short-term Hold rating. It competes in the ‘Oil Refining and Marketing MLP' industry with firms like AmeriGas Partners LP (APU).

 
AMERIGAS PARTNR (APU): Free Stock Analysis Report
 
GENESIS ENERGY (GEL): Free Stock Analysis Report
 
Zacks Investment Research