Enbridge And Buckeye: As Both Miss Q2, A Long-Term Buying Opportunity Could Emerge

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Includes: BPL, EEP
by: Heather Ingrassia

As an income-driven investor with a very aggressive appetite for higher-yielding stocks, there are several criteria I like to establish before narrowing down my search for what I consider to be a sustainable oil & gas pipeline play. In this article I wanted to examine two MLPs which yield at least 6.00%, possess a forward P/E ratio at-or-under 27, and have a market cap under $10.0 billion.

#1 Enbridge Energy Partners LP (NYSE:EEP) - On Tuesday shares of EEP, which currently possess a market cap of $9.63 billion, a forward P/E ratio of 25.90, and a forward yield of 7.09% ($2.17), settled at $30.59. Based on Monday's closing price, shares of EEP are trading 3.54% below their 20-day simple moving average, 0.59% above their 50-day simple moving average, and 7.32% above their 200-day simple moving average. These numbers indicate a very slight short term downtrend and mid-to-long term uptrend for the stock, which generally translates into a near-term selling mode and a long-term buying mode for most traders.

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A Soft Q2 Could Create a Buying Opportunity

On Monday, July 29 Enbridge Energy Partners, LP reported the results of what I believe to be a very soft second quarter. The company's Q2 EPS of $0.13 /share missed street estimates by $0.09/share, and its revenue of $1.67 billion missed street estimates by a margin of just $0.08 billion. Although the company's net income completely missed the boat, revenues weren't too far off and as a result I think that the near-term sell-off in shares of EEP could create a buying opportunity from a longer-term growth and income perspective.

What were some of the ancillary factors behind the Enbridge's soft Q2? In my opinion, the company's $22.1 million decline in net income was due largely in part to the impact lower natural gas liquids prices had on the company's bottom line as well as the company's deferred distribution in terms of the recently issued $1.2 billion in preferred securities.

According to Mark Maki, who is President of Enbridge Energy Partners, LP, the company's results were "lower than forecasted as deliveries on our liquids pipelines systems were hindered due to significant unplanned downstream refinery maintenance, in addition to weak NGL prices and an associated Midcontinent ethane rejection … Deliveries on our liquids pipelines systems are expected to increase as we begin realizing the benefits of major capital projects which enter service and begin delivering earnings and cash flows during the second half of the year".

If the company can indeed realize an improvement in cash flows during the second half of the year, I strongly believe an increase in its quarterly distribution could be right around the corner.

#2 Buckeye Partners LP (NYSE:BPL) - On Tuesday shares of BPL, which currently possess a market cap of $7.60 billion, a forward P/E ratio of 19.41, and a forward yield of 5.84% ($4.20), settled at $71.89. Based on Monday's closing price, shares of BPL are trading 0.52% above their 20-day simple moving average, 3.57% above their 50-day simple moving average, and 25.69% above their 200-day simple moving average. These numbers indicate a near-term, mid-term, and long-term uptrend for the stock which translates into buying mode for most traders.

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Buckeye's Q2 May Not Be as Soft as It Seems

On Friday, August 2 Buckeye Partners, LP reported the results of what I also believe to be a very soft, yet steady second quarter. The company's Q2 EPS of $0.72 /share missed street estimates by $0.07/share, and its revenue of $1.00 billion missed street estimates by a considerable margin of $0.23 billion. Although the company's net income and revenues both missed the mark, there are a number of variables to consider when it company's overall performance for the quarter. For example, the company's adjusted EBITDA of $148.5 million rose 24% when compared to the year-ago period when it demonstrated adjusted EBITDA of $119.9 million, and its aggregate pipeline volumes increased 3.3% across the board to just over 1.4 million barrels per day.

Even though Buckeye demonstrated an impressive improvement in terms of both EBITDA and aggregate pipeline volumes, there were two very important agreements the company signed during the quarter.

According to the transcript of its earnings-based conference call, "The first is a long-term agreement with the Midwest refiner to construct 1.1 million barrels of crude oil storage, which is expected to be in service in mid-2014. The second agreement is a long-term contract to provide crude oil services for products sourced via a pipeline from both the Bakken and Western Canadian Oilfields and to begin providing crude oil services later this year".

If both agreements can come into service at-or-ahead of their prescribed timelines, I strongly believe both could have a very positive impact on the company's earnings and subsequent distribution growth for years to come.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EEP, BPL 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.