Expectations For M&A In Midstream Oil & Gas: Raymond James Downgrades Holly Energy And Crestwood Equity Amid Acquisition Deals

Raymond James analyst Justin Jenkins downgraded the ratings on midstream oil & gas suppliers Holly Energy Partners LP HEP and Crestwood Equity Partners LP CEQP to Market Perform from Outperform.

The move reflects separate acquisition deals for both stocks.

Crestwood Equity penned a merger agreement with Energy Transfer LP ET for around $7.1 billion.

The analyst doesn't see a "sweetener" as a part of this transaction and believes in a solid outcome and a lower risk for CEQP. 

Jenkins expects the deal to be more rewarding for ET.

For CEQP, the analyst estimates distribution/unit and adjusted EBITDA of $800 million and $2.62 for FY23 and $850 million and $2.62 for FY24. 

On the other hand, Holly Energy penned an acquisition deal with HF Sinclair Corporation DINO for a combination of common stock of HF Sinclair and cash.

The analyst sees the deal as a fair outcome for HEP and a simplifying move for DINO. 

Per the analyst's expectations, the merger terms included higher overall consideration for HEP and a cash component.

For HEP, the analyst estimates distribution/unit of $1.40 and adjusted EBITDA of $445 million for FY23 and $1.40 and $475 million for FY24, respectively. 

Both acquisition deals are expected to close in Q4 FY23. The analyst sees lower regulatory risk or chances of revised terms and additional bidders for both deals.

Price Action: CEQP shares are trading higher by 0.75% at $28.08, and HEP shares are up 2.3% at $22.03 on the last check Friday.