MarkWest Energy Partners Makes a Strong Comeback

Jun.29.09 | About: MarkWest Energy (MWE)

MarkWest Energy Partners (NYSE:MWE), a natural gas gathering and processing master limited partnership (MLP) has seen its unit price soar 78% since March.

MarkWest has come back strongly from a rocky second half of 2008, in which there were doubts regarding its ability to sustain distribution levels in the face of weak commodity prices and reduced access to credit. Those concerns have largely been laid to rest following the partnership's improved liquidity position and growing signs of vitality in the credit and equity markets.

We believe that MarkWest's Marcellus joint venture with NGP Midstream & Resources (and the concurrent credit facility expansion) and the recent senior notes offering adequately address its near-to-medium term liquidity needs. Additionally, the recent formation of a separate joint venture with ArcLight Capital Partners LLC to construct and operate the Arkoma Connector pipeline has the potential to further buttress the partnership's liquidity position.

These favorable developments, in conjunction with the partnership's hedge program, have improved our confidence in MarkWest's ability to maintain current distribution levels ($0.64 per unit, or $2.56 per unit annualized) over the next twelve months.

Despite impressive recent gains, valuation in this MLP remains at extremely attractive levels. As such, we see substantial upside potential in MarkWest units and therefore maintain our Buy recommendation with 12-month target price of $20.

We continue to view MarkWest as a core MLP holding. Our other Buy-rated names in this space are Kinder Morgan Energy Partners (KMP), Enterprise Products Partners (EPD), NuStar Energy (NYSE:NS), Energy Transfer Partners (NYSE:ETP) and TC PipeLines (TCLP).

MarkWest is a MLP engaged in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids, and the gathering and transportation of crude oil. MLPs are securities having a unique corporate structure that exhibit hybrid financial features (fixed income as well as equity).