Magellan Midstream Partners (MMP -0.4%) is downgraded to Outperform from Strong Buy with a $73 price target, trimmed from $78, at Raymond James, which says MMP's ultra-defensive characteristics may result in shares lagging peers as oil prices continue to recover throughout 2017 and beyond.
At the same time, James upgrades several other energy MLPs: EnLink Midstream Partners (ENLK -1.2%), Crestwood Equity Partners (CEQP -0.4%) and Targa Resources (TRGP -0.1%) to Outperform from Market Perform, and Holly Energy Partners (HEP -0.9%) and NGL Energy Partners (NGL +4.3%) to Market Perform from Underperform.
Top 10 Holdings as of 11/30/2016: Targa Resources Corp (TRGP): 2.44149%, Joy Global Inc (JOY): 1.18652%, Kronos Worldwide Inc (KRO): 1.00928%, Regal Entertainment Group (RGC): 0.93362%, Covanta Holding Corp (CVA): 0.87003%, Quad/Graphics Inc Class A (QUAD): 0.82978%, ALLETE Inc (ALE): 0.80104%, Nu Skin Enterprises Inc Class A (NUS): 0.75942%, Black Hills Corp (BKH): 0.75222%, Pattern Energy Group Inc Class A (PEGI): 0.73725%
The new Trump administration should bode well for MLPs, RBC analysts say, as cabinet appointments appear energy friendly and the federal regulatory environment could ease somewhat for energy; MLPs also could benefit from the new pro-infrastructure stance, which could help the group to stay clear of any tax changes.
The group was in a "hunker down" mode this year, RBC says, as the best performing MLPs mostly were those that came out of distress by successfully addressing balance sheet concerns - such as NGL Energy Partners (NYSE:NGL) and Plains All American Pipeline (NYSE:PAA) - and those most obviously exposed to the fundamental macro themes on the year - such as Targa Resources (NYSE:TRGP) and Oneok (NYSE:OKE)/Oneok Parnters (NYSE:OKS).
YTD, Oneok, American Midstream (NYSE:AMID) and USD Partners (NYSE:USDP) are the best performers in the sector, all more than doubling, while Ferrellgas Partners (NYSE:FGP) and Southcross Energy Partners (NYSE:SXE) both lost more than 50%.
Outrigger Energy, backed by P-E firm Denham Capital, is nearing a sale to a publicly traded oil and gas midstream services provider, with an affiliate of EnLink Midstream Partners (ENLK -0.5%) and EnLink Midstream LP (ENLC -0.3%) the most likely buyer, Forbes reports.
Targa Resources (TRGP +0.1%) and Energy Transfer Partners (ETP -0.2%) also are potential acquirers, according to the report.
Denver-based Outrigger owns oil and gas pipeline and processing assets in west Texas' Permian Basin, the Rockies and the Mid-Continent.
Top 10 Holdings as of 10/31/2016: Targa Resources Corp (TRGP): 2.21837%, Joy Global Inc (JOY): 1.29446%, Covanta Holding Corp (CVA): 0.98758%, Nu Skin Enterprises Inc Class A (NUS): 0.98583%, Regal Entertainment Group (RGC): 0.96324%, Pattern Energy Group Inc Class A (PEGI): 0.92233%, ALLETE Inc (ALE): 0.87816%, Black Hills Corp (BKH): 0.87233%, Quad/Graphics Inc Class A (QUAD): 0.7723%, Lexmark International Inc (LXK): 0.77094%
Top 10 Holdings as of 9/30/2016: Targa Resources Corp (TRGP): 2.36391%, Joy Global Inc (JOY): 1.22914%, Nu Skin Enterprises Inc Class A (NUS): 0.98695%, Covanta Holding Corp (CVA): 0.96533%, Regal Entertainment Group (RGC): 0.92791%, Pattern Energy Group Inc Class A (PEGI): 0.88415%, Quad/Graphics Inc Class A (QUAD): 0.82743%, Royal Gold Inc (RGLD): 0.82602%, Black Hills Corp (BKH): 0.82263%, ALLETE Inc (ALE): 0.81383%
Targa Resources (TRGP +1.5%) is upgraded to Buy from Hold with a $50 price target, up from $48, at Stifel, citing what it views as the company's strong Q4 export guidance.
Stifel says Q3 results were below its estimates, including adjusted EBITDA of $245M vs. its estimate of $254M and Wall Street consensus of $264M, driven by Q/Q declines in the logistics and marketing segment as liquefied petroleum gas export volumes fell 12.6% Q/Q and 12.9% Y/Y.
But Stifel believes export activity looks to be robust for Q4, and TRGP expects to exceed previous guidance of at least 5M barrels per month of exports in FY 2016.
Top 10 Holdings as of 8/31/2016: Targa Resources Corp (TRGP): 2.1059%, Joy Global Inc (JOY): 1.21334%, Pattern Energy Group Inc Class A (PEGI): 0.93868%, Covanta Holding Corp (CVA): 0.93744%, Regal Entertainment Group (RGC): 0.91551%, Nu Skin Enterprises Inc Class A (NUS): 0.88507%, Quad/Graphics Inc Class A (QUAD): 0.84198%, ALLETE Inc (ALE): 0.81244%, Black Hills Corp (BKH): 0.78909%, Royal Gold Inc (RGLD): 0.78502%
Targa Resources (TRGP +0.4%) is downgraded to Hold from Buy with a $48 price target at Stifel, which cites valuation following gains after recent upgrades (I, II) at Barclays and Goldman Sachs.
Stifel has concerns surrounding liquefied petroleum gas exports which could be weaker than expected going into Q3; according to third party data, at least 16 U.S. LPG export cargoes have been cancelled during August and September, which the firm believes could pressure TRGP.
TRGP is trading at 12.5x EV/EBITDA, which the firm believes is near fair value but would be more constructive on shares following a pullback.
Targa Resources (TRGP +0.2%) is upgraded to Overweight from Equal Weight with a $55 price target, raised from $47, at Barclays, citing a high dividend yield which the firm thinks is safe and well positioned for growth in 2018.
Barclays believes a healthy balance sheet will support TRGP's dividend even under a more bearish price scenario and, at the same time, allow it to benefit from industry consolidation which has picked up with the prolonged commodity downturn.
The firm says TRGP offers 25% total return prospects from high yield and price upside potential, as its valuation discount should improve in a better crude and natural gas liquids price environment it expects in 2017 and beyond.
Goldman Sachs upgrades its coverage on energy midstream partnerships to Attractive from Neutral, expecting a return of volume growth in 2017 and further growth in natural gas liquids, oil and natural gas helping to generate better margins.
The firm foresees few risks of any additional dividend cuts, as leverage and coverage should show improvements in 2017 and 2018, and believes financial risks from capital markets have begun to recede.
Goldman upgrades two names - Targa Resources (TRGP +3%) and Buckeye Partners (BPL +1.8%) - to Buy from Neutral, and lifts two more - Enable Midstream Partners (ENBL +3%) and Enbridge Energy Partners (EEP +0.9%) - to Neutral from Sell; however, EnLink Midstream (ENLC -0.5%) is downgraded to Sell.
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.