NuStar Energy (NS -2.6%) is lower after repeating guidance for FY 2017 EBITDA of $600M-$650M and Q4 EPS coming in at a loss of $0.30-$0.40, including a ~$60M non-cash charge during Q4 to adjust the carrying value of the Axeon term loan, according to a slide presentation.
NS says several projects have been completed or are under development with an unnamed customer to increase distillate and propane supply throughout the Upper Midwest for a ~$80M investment; construction on remaining projects should be completed by Q4 2017.
NS also says it is working with Pemex to develop a project to transport liquefied petroleum gas and refined products from the U.S. into Mexico, with $125M costs originally planned for 2016 now expected in 2017-18 due to delays.
Martin Midstream Partners (NASDAQ:MMLP) agrees to sell its 900K-barrel Corpus Christi crude oil storage terminal and related assets to NuStar Logistics (NYSE:NS) for $107M, confirming an earlier report.
At the same time, MMLP says it is reducing its quarterly dividend to $0.50/unit, a 38.5% reduction from $0.8125/unit in Q2.
MMLP says the asset sale is a necessary first step to ultimately returning the company to a growth trajectory, and that the two actions "should provide a sound catalyst to reducing our currently elevated cost of capital by de-levering and improving increased distribution coverage to our unitholders."
World Point Terminals (WPT +2.7%) is upgraded to Buy from Hold with a $16 price target at Stifel, which believes WPT provides stable assets and distributions at an attractive price.
Stifel says WPT's asset base, while small and scattered, is steady and largely fee-based, and the partnership has a solid track record of paying $0.30/quarter with coverage typically at 1.2x-1.3x, for a current 8.3% yield.
The firm also upgrades NuStar Energy (NS +0.7%), ONEOK Partners (OKS +1.2%) and Dominion Midstream Partners (DM -0.5%) to Buy from Hold, citing current valuations and yields that provide strong risk/return profiles.
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.
Sentiment is improving and "recovery emerging” around energy MLPs, Citi's Faisel Khan says, citing Improving commodity prices and tighter credit spreads as the main reasons, as some companies are positioning for volume growth.
Khan's "key thematic picks" are Energy Products Partners (NYSE:EPD), as a play on growth in natural gas liquids, Plains All American Pipeline (NYSE:PAA) and Plains GP Holdings (NYSE:PAGP) on growth in the Permian basin, and EnLink Midstream (NYSE:ENLC), as a play on Oklahoma expansion.
NuStar Energy (NS +1.3%) and NuStar GP Holdings (NSH +2.8%) are both upgraded to Buy from Neutral at Citigroup, driven mostly by increased Mexican refined product demand and future crude exports.
Citi's bullish thesis on NuStar also is centered on RINs and ethanol blending capability, less burdensome IDRs and improving cost of capital, as well as downside risk protection due to contracts and strategic assets.
The firm expects NuStar to raise equity, delever and resume its distribution growth over the next few years on favorable fund flows, improving capital markets and a 23% IDR cap; it projects ~3% distribution growth at NS and ~5% at NSH through 2020.