Deutsche Bank's MLP analysts point to significant trends shown in Q3 reports it says indicate an improved outlook for the natural gas and MLP sectors; the annualized rate of dividend growth among the nat gas companies rose to 13.9% from ~12% earlier this year, and the MLPs’ annualized rate of distribution growth rose to 8.7% from 7%.
The firm's top MLP names to buy: Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), Kinder Morgan Partners (KMP), Plains All American Pipeline (PAA), Western Gas Partners (WES), Access Midstream Partners (ACMP).
Oppenheimer restarts coverage of energy MLPs, bullish on the asset class as a whole; the firm shows a bias in favor of investing in higher distribution growth, even if the yields are lower, and for owning general partners due to their incentive distribution rights structure.
Started at Outperform: EQT Midstream (EQM +2.1%), Seadrill Partners (SDLP +0.7%), Tesoro Logistics (TLLP +1.6%), Memorial Production Partners (MEMP +2.4%), Western Gas Partners (WES +0.4%), Western Gas Equity Partners (WGP +0.7%).
Started at Market Perform: Williams Partners (WPZ), Crosstex Energy (XTEX), ONEOK Partners (OKS), Genesis Energy (GEL).
Also: New Source Energy (NSLP), Breitbrun Energy Partners (BBEP), LRR Energy (LRE), Mid-Con Energy Partners (MCEP).
Western Gas Partners (WES +0.3%) says it will begin construction of a second cryogenic processing train at its Lancaster plant in the DJ Basin this year, with capacity of 300M cf/day and throughput of 200M via Anadarko (APC). Also, WES will pick up a 25% at-cost interest in a JV with Enterprise Products Partners (EPD) in two fractionation trains in Mont Belvieu, Tex., already under construction.
Even as rising interest rates and lower oil and natural gas prices impact valuations across the MLP sector, Deutsche Bank continues to view the sector favorably because of its organic growth, rising dividends and distributions, and still historically low costs of capital. The firm's latest report points to still attractive fundamentals for its top MLPs to buy: EPD, KMP, PAA, WES, ACMP, RRMS.
Western Gas Partners (WES) -3.5% AH after announcing a public offering of 6.1M common units. WES expects to use the proceeds to pay down debt and for general partnership purposes, including the funding of capital expenditures.
With the natural gas sector showing an average dividend yield of 3.6% and a dividend growth rate of more than 10% vs. the S&P 500 dividend yield of 2.1% and dividend growth of ~5%, Deutsche Bank is bullish on the sector and expects more upside in 2013 and beyond. The firm's top buys: PAA, EPD, KMP, KMR, WES, ACMP.