PVR Partners: A 9% Yielder To Pick Up Before Its Transformation Is Complete

| About: Penn Virginia (PVR)

PVR Partners (NYSE:PVR) is a high yielding MLP that has been under pressure over the last couple of years as traditionally it has made most of its revenue from royalties leasing coal assets, an industry in decline. However, the company formerly known as Penn Virginia Resource Partners, is transforming itself into a player in the natural gas midstream space. It should be a primary beneficiary of the continued expansion of natural gas production from the Marcellus shale as well as from the Mid-Continent and yields over 9%. Investors looking to pick up yield should consider getting ahead of the market and recognize the company's transformation potential before other investors do.

Key recent catalysts for PVR:

  • The company just completed a 30 mile trunk line in the Marcellus shale region. It has contracted a third of capacity out to five independent producers on fixed fee long term contracts.
  • It has several other projects in the region that will complete in 2013 and 2014. Because of this build out, the company projects it will more than triple midstream volume from 2011 by the end of 2013.
  • Because of the new projects and contracts, the company will be getting 80% of midstream revenue based of long term fixed fee contracts versus around 30% in 2011. This will pretty eliminate commodity price fluctuation risk from natural gas.
  • It successfully just raised a little over $165mm by issuing additional common units and will use the proceeds to pay down its revolving facility. These new units represent about 5% of total float.

Note: The company's coal leases average 10-15 years in duration and the company has no direct exposure to mine operating costs and risks or reclamation costs.

PVR Partners, L.P. engages in the management of coal and natural resource properties; and gathering and processing of natural gas in the United States. It operates in two segments, Coal and Natural Resource Management, and Natural Gas Midstream.

4 additional reasons PVR is solid income play at $23.50 a share:

  1. Distributions provide an over 9% yield (9.1%) and the company has raised it payouts 8% Y/Y. If it hits revenue growth projections, distributions should accelerate in the future.
  2. After being down this year, revenue growth is projected to be over 30% in FY2013 as new projects come online.
  3. The five analysts that cover the stock have a $30 median price target on the shares, significant potential capital appreciation on top of a 9% yield.
  4. PVR sells just over a narrow, long term technical support range (See Chart).

Click to enlarge

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PVR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.