Cramer's 'Best Of Breed' Energy MLP Plays

Includes: EPD, KMP
by: Bret Jensen

On Mad Money on Thursday night, Jim Cramer highlighted two of his favorite energy MLPs which he stated could be a good antidote for possible "froth" in the market. These two plays are summarized below and could be solid pickups for investors looking for long term income plays. They also should be able to continue to ride the huge energy boom that is quickly moving the United States toward energy independence.

Enterprise Products Partners L.P. (NYSE:EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. The company operates ~16,700 miles of natural gas liquid pipelines; NGL and related product terminal and storage facilities with approximately 159.1 million barrels of net usable storage capacity (MMBbls); and 14 NGL fractionation plants. The company's Onshore Natural Gas Pipelines & Services segment operates approximately 19,900 miles of onshore natural gas pipeline systems to gather and transport natural gas in Colorado, Louisiana, New Mexico, Texas, and Wyoming.

4 reasons EPD is a solid income play at $61 a share:

  1. EPD yields 4.3% and has had an incredible 35 straight quarterly distribution increases.
  2. Analysts expect revenue growth to expand at better than a 10% CAGR over the next two fiscal years. The company has over $10B in capacity expansion projects in the pipeline.
  3. Consensus earnings estimates for both FY2013 & FY2014 have risen nicely over the past three months. The company has beaten earnings estimates for six straight quarters and the average beat over consensus during that time span has been north of 20%.
  4. S&P has its highest rating "Strong Buy" on the shares and a $69 price target on EPD. The company is also at the top of Raymond Jame's favorite energy stocks and energy MLP plays.

Note: I first highlighted this play back in August 2011 when it was trading at less than $40.

Kinder Morgan Energy Partners, L.P. (NYSE:KMP) is one of the oldest and largest players in the energy MLP space. It has approximately 8,600 miles of refined petroleum products pipelines; and operates 62 associated product terminals and petroleum pipeline transmix processing facilities. The company's Natural Gas Pipelines segment gathers, transports, stores, treats, processes, and sells natural gas through approximately 33,000 miles of natural gas transmission pipelines and gathering lines, as well as natural gas storage, treating, and processing facilities.

4 reasons KMP is a good addition to an income portfolio at $88 a share;

  1. KMP yields almost six percent (5.9%) and has more than doubled its payouts over the last decade.
  2. Analysts project over 20% revenue growth in FY2013 and almost 10% sales gains in FY2014. The company recently gained an important Canadian approval which will help it increase its transportation capacity from Edmonton to Vancouver from ~300K BPD to ~890K BPD.
  3. It's another stock that has the S&P rare "Strong Buy" rating with a $99 price target. KMP also has a beta less than half the overall market, which should bode well if volatility increases.
  4. Consensus earnings estimates for both FY2013 & FY2014 have moved up nicely in the last two months. There have been no insider sales in almost two years in the shares.

Disclosure: I am long EPD. 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.