Seeking Alpha
Hedge fund manager, energy, value, special situations
Profile| Send Message|
( followers)  

Summary

  • Hedgeye targeting another set of MLPs, already down.
  • Last MLPs Hedgeye targeted traded down substantially.
  • This time may be different, and Hedgeye was not as vocal about the big MLP blowup of 2014.

Hedgeye analyst Kevin Kaiser tweeted on April 21st regarding Atlas Energy (NYSE:ATLS) and Atlas Pipelines (NYSE:APL), sending both unit prices down substantially (intraday as much as 8%) as the market anticipates research being released on April 24th (the date provided by Kaiser in one of his tweets).

This move down follows previous successful short calls by Hedgeye targeting Linn Energy (NASDAQ:LINE) and Kinder Morgan (NYSE:KMP). In the case of LINE, Hedgeye managed to drive the price down to the point where it threatened a planned multi-billion dollar merger and forced LINE management to up price it had to pay in Linn Co (NASDAQ:LNCO) stock for its acquisition, costing stock and unit holders close to $1 billion in extra dilution.

Here is a chart of LINE's two year historical performance. It is visibly obvious when one of Hedgeye's reports came out:

(click to enlarge)

Hedgeye's coverage of Kinder Morgan (NYSE:KMI) and Kinder Morgan Energy Partners was even more successful from a market cap perspective, as Kinder Morgan entities are far larger than LINE and LNCO, but less successful on a percentage basis, and did not have the same sort of fundamental detrimental impact to the businesses. Below is a chart of price performance of KMI and KMP over the past two years - Hedgeye nearly top-ticked the unit prices in initiating its research, and the prices have yet to recover to levels seen before the research came out.

(click to enlarge)

The big story in the MLP universe, though, was not as well covered by Hedgeye. It was the blowup, earlier this year, of Boardwalk (NYSE:BWP), a 50% one day decline in unit price driven by fundamental issues at the entity. Despite in-depth coverage of other MLPs, and despite having BWP on its short list, Hedgeye did not highlight Boardwalk's issues as aggressively, perhaps due to focusing on larger / better known MLPs like Kinder Morgan (despite those MLPs' likely higher quality cash flow and assets than Boardwalk's). Here is a chart of LINE, Kinder Morgan and Boardwalk over the past 2 years:

(click to enlarge)

Getting back to Atlas - Hedgeye has clearly been able to drive down the unit prices of the MLPs it publishes research on, and was able to draw sufficient negative attention to LINE to both garner SEC scrutiny and to force LINE to substantially increase the number of units it paid in a multi-billion dollar acquisition. This does not bode well for Atlas, despite what appears to be a robust MLP.

In Atlas's favor, the Cohen family has proven themselves numerous times, including a multi-billion dollar divestiture of the old Atlas E&P company to Chevron (NYSE:CVX), a huge win for investors. And Atlas has unique funding structures on the E&P side which may blunt some of the negative impact of lower unit prices, and which Hedgeye may miss in its analysis (it is hard to know what may or may not be included).

At the moment, I am staying on the sidelines. But if Atlas unit prices trade down substantially, I could be a buyer, as both Kinder Morgan and LINE have rebounded (in LINE's case, rebounded substantially) from the low unit price reached in the aftermath of Hedgeye research, and the Cohens have a good track record of creating long-term value for their investors.

Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment adviser capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

Source: The Next MLPs To Crash? Hedgeye Targets Another Pipeline MLP