One of the most challenging things for income investors over the last year or two has been to find yield at reasonable valuations with acceptable risk given current Federal Reserve policies & programs. I have looked to the energy MLP space for a good portion of my income investments over the last few years. Most of these entities have had a fantastic run, but seem more than fairly priced here. There are exceptions if one is willing to look at some non-traditional businesses in MLP form such as a couple of refiners I highlighted the other day. Another interesting play here is Hi Crush Partners LP (HCLP) which is a producer of monocrystalline sand which is used in fracking. The company offers a 10% distribution yield, has good growth prospects, is cheap based on valuation and has picked up some recent positive catalysts.
Positive catalysts for HCLP:
- Consensus earnings estimates for FY2014 have moved up to $2.75 a share up from $2.51 a month ago.
- RBC Capital raised its price target to $23 a share from $20 on May 15th.
- The company recently made a strategic acquisition of a frac sand distributor for $125mm.
- In its recent quarterly earnings report revenue rose 45% Y/Y.
4 additional reasons HCLP is a good income pick up at $18.50 a share:
- HCLP has a 10% distribution yield and has doubled its payout rate since coming public in August 2012.
- Analysts expect ~60% revenue growth this fiscal year and more than 40% in FY2014. The stock has a minuscule five year projected PEG (.18)
- Given growth projections, paying just over 8x this year's projected earnings seems extremely cheap.
- The seven analysts that cover the stock have a median price target of $22 a share on HCLP.