Genesis Energy (GEL +1.3%) is downgraded to Neutral from Outperform with a $40 price target, cut from $47, at Credit Suisse, citing the company's disappointing Q3 earnings and revenues as well as its cautious outlook.
Credit Suisse notes that GEL's Q3 EBITDA came in below estimates on the back of lower than expected volumes across the segments, hurt by volume cannibalization and margin compression.
GEL sees Q3 volumes at a trough and expects volume recovery from new organic projects, based the firm says volume increases from new projects being placed in service appear likely to ramp more slowly than previously estimated.
Energy MLPs enjoyed a lift this week (at least until yesterday) following news of the Enbridge-Spectra merger, particularly those lacking sponsorship by producers that may be targets for consolidation.
FBR Capital says MLP valuations have improved ~45% from lows reached early this year, and expects macro trends to lift the sector; the firm thinks CAPL could enjoy double-digit growth for nearly seven years, and says MMLP is another notable outperformer whose valuation reflects more than enough discount for a distribution cut (which the firm is forecasting) - it also likes ENLK, EEP, TLP, SRLP, USAC, WLKP and USDP,
RBC notes favorable sentiment in the MLP realm, highlighting attractive valuations particularly at ETP, BWP and AMID, and sees dropdown stories - out of favor YTD - such as VLP and SHLX offering visible growth that can support the stocks over the next 12 months.
The outlook for most energy MLPs remains risky because of further declines in commodity prices due to oversupply and potential for a slowdown in China, Credit Suisse says in a report that's no better than neutral on the group.
But the firm still suggests four MLP favorites, including EQT Midstream (NYSE:EQM) because of its 20%-plus three-year distribution compound annual growth return outlook with upside from rising Utica volumes, as well as low leverage and no direct commodity exposure.
Credit Suisse also recommends Genesis Energy (NYSE:GEL), with distribution growth of ~10% expected for the next several years; Tallgrass Energy Partners (NYSE:TEP), which it considers a top distribution grower (20%-plus) over the next few years; and Boardwalk Pipeline Partners (NYSE:BWP), thanks in part to new growth from potential conversion of coal-fired plants to gas along BWP’s systems that will drive higher gas volumes.
Genesis Energy (NYSE:GEL) -3.3% AH after announcing a public offering of 8M common units, with an underwriters option to purchase up to an additional 1.2M units.
GEL says it plans to use the proceeds for general partnership purposes, including funding acquisitions including organic growth projects, or repaying some of the borrowings outstanding under its revolving credit facility.
Energy MLPs had one of the strongest quarters ever in Q2, with the Alerian MLP Infrastructure Index surging 18.1% in a major recovery since the losses seen early in the year, and the index is now up 8% YTD.
DA Davidson’s Poe Fratt sees tempered MLP growth “on full display,” and remains positive on crude oil prices through 2017 despite recent weakness, believing that non-OPEC production finally is declining and lower capex has set the stage for better supply demand.
Fratt’s best current ideas include Enterprise Products Partners (NYSE:EPD), Genesis Energy (NYSE:GEL), Magellan Midstream Partners (NYSE:MMP), and Spectra Energy Partners (NYSE:SEP), all of which he rates Buy.
But Citi's Faisel Khan says investors should stay cautious given that the group faces tight liquidity and stretched balance sheets; he considers Legacy Reserves (NASDAQ:LGCY), Vanguard Natural Resources (NASDAQ:VNR) and EV Energy Partners (NASDAQ:EVEP) among the higher risk names, and that Atlas Resources Partners (NYSE:ARP) is "running out of options" and could be forced into bankruptcy.
Genesis Energy (GEL +1.7%) is upgraded to Buy from Neutral with a $46 price target at Citigroup, saying the stock "offers investors an underappreciated growth story driven by a visible ramp in its deepwater Gulf of Mexico pipelines and organic investments in its supply and logistics/onshore pipeline businesses."
Citi expects GEL to generate ~10% distribution growth through the end of the decade, and thinks the company is set to benefit from its near $1B organic capex in H2 2016 or early 2017.
The firm foresees additional cash flow growth in GEL's offshore business through 2020 driven by increased production from several key projects including Lucius and Heidelberg.
The past week has rewarded the energy MLP sector with new YTD highs, mostly thanks to the gains in crude oil prices; the Alerian MLP ETF rose another 0.8% to $12.36 in today's trade, up from $11.77 a week ago and $7.97 in mid-February.
DA Davison MLP analyst Poe Fratt tells Bloomberg he still sees good value in MLPs, saying MLP prices have only just started to inch up since early April, noting that while Treasury yields have fallen, yield spreads look more attractive.
Fratt's best 2016 idea in energy MLPs is Enterprise Products Partners (NYSE:EPD), which he says remains well positioned in the challenging environment; the firm also rates Genesis Energy (NYSE:GEL), Spectra Energy Partners (NYSE:SEP) and Magellan Midstream Partners (NYSE:MMP) at Buy.