Thomas Lott
Long/short equity, deep value, special situations, hedge fund manager

Sell Your Linn Energy And Pick Up Pioneer Southwest At A Cheaper Valuation, Bigger Yield

Pioneer Southwest Energy (PSE), an oil and gas MLP based in Texas, has sold off lately along with many energy partnerships amidst weak commodity prices and legitimate concerns surrounding accounting practices in the industry. The good news for Pioneer is that, different from Linn Energy (LINE), PSE does not spend dollars purchasing puts to hedge its portfolio. It enters into costless collars and swap contracts to hedge its output. Therefore, there is zero concern at PSE regarding overstated distributable cash flow.

Even better, PSE trades at a bargain 9.04% yield, far higher than Linn's 7.5% yielding units, and sports a reasonable Distributable Cash Flow coverage ratio of 1.06x (almost identical to Linn's supposed DCF coverage ratio of 1.07x). More...

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