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I am a private investor who has invested in individual stocks for over a decade. I have a BBA from the University of Texas at Austin. I am retired and living off of dividends and distributions from a portfolio of BDCs, consumer staple stocks, MLPs, regional banks and REITs.
  • MWE - The Factoids' View 1 comment
    Feb 28, 2014 1:53 PM

    In 2012 MWE had DCF of $416.423 million compared to $332.796 million in 2011.
    In 2012, DCF was 112% of the distribution.
    In February of 2013 MWE projected 2013 DCF of $500 million to $575 million and growth cap ex of $1.5 billion to $1.8 billion
    At the end of Q3-13, the 2013 DCF projection had fallen to a range of $475 million to $485 million
    In February of 2014 MWE reported 2013 DCF of $483.4
    In 2013, DCF was 99% of the distribution. 2013 growth cap ex spending was reported at $3.029 billion
    For 2014, MWE is projecting DCF of $600 to $690 million. Growth cap ex spending projected at $1.8 - $2.3 billion.

    From the CC transcript:

    Problems during Q4-13 - "our NGL pipeline break, Northeast fractionation capacity constraints and the delayed startup of the Sunoco Mariner West pipeline." As of January 2014, all of these constraints have been resolved. Our coverage ratio for the fourth quarter 2013 was 0.94x and for the full year it was 0.99x. The total DCF impact from these one-time events in the third and fourth quarter totaled $27 million, and without these issues, our full year coverage was 1.04x."

    At the close of 2013, our debt to total capital was 39%, our interest coverage ratio was 4.5x and our leverage ratio was also 4.5x.

    Our DCF forecast remains in a range of $600 million to $690 million. The midpoint of the guidance would result in year-over-year DCF growth of 33% and a full year 2014 coverage ratio of approximately 1.1x at our current distribution and the midpoint of our growth capital forecast.

    Blum of WFC asked do you expect to return to "top quartile distribution growth" in 2015? MWE replied - We would quantify top quartile growth as being "high single-digit, low double-digit distribution growth area" - and see that happening near the end of 2015 into 2016.

    Some valuation math:
    Current run rate annual distribution at $0.86/quarter = $3.44/yr
    In January 2014 the consensus 2014 distribution projection was $3.62 - and that should fall to (86+87+88+89) $3.50

    On 2-14-14 MWE was priced at $72.53 - and my formulas indicated a 7.76% "price implied CAGR" at that time.
    At the current $63.53, my formulas indicate a 7.09% price implied CAGR. Even with the drop - that is still a high price implied CAGR.

    A stock that has distribution growth inertia of 4.88% will not often sell at a price implied CAGR that is well over that amount - even when the growth is fairly visible. Investors will have to be "told" how much MWE is worth. The analysts are doing that - but what the market is hearing is only half the message. The market is hearing that "MWE is worth less" than it was prior to these new and delayed growth projections.

    The analysts, who are judged by the market for "what they have done for us lately" - have a need to drop MWE from their list of stocks that will move relatively soon to higher prices. That is just the way it is. And they are doing that with relatively mild changes in their ratings. MWE has become a delayed gratification stock.

    I am diversified. I am CAGR projection aware. I own a lot of high CAGR stocks producing growth in the here and now. I do not mind having a delayed gratification stock. I am informally putting MWE "on probation" for this delay. We were already in a growth pause in 2013. There are limits to my patience. There are stocks that "never promised us a rose garden". MWE is promising us roses - in 2016. If there is another delay - then I may have an emotional response.

    In summation - I am saying a collection of thoughts that appear in conflict. 1 - If you sell now, you are selling at a decent valuation. The price implied CAGR is higher than distribution growth inertia and the distribution projection for the next two years. 2 - With the price implied CAGR of 7%, you will be glad you held on - once 2016 rolls around and distribution growth is 9% to 10% - and stays that way for multiple years. The correct decision is the one that fits your time horizon. 2014 will probably not be a good year.

    Disclosure: I am long MWE.

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  • gfmn2000
    , contributor
    Comments (951) | Send Message
    Thanks for the article on your current view of MWE. It is interesting to read of your thought process as you weigh and sort through the current situation.
    1 Mar 2014, 08:36 PM Reply Like
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