I believe a stock that grows it's dividend .17-.44, has a low PE 16 and is heading into it's historically seasonal pattern of higher usage and higher stock price should not be falling like this. Plus look at the historical earnings surprises. This company is well managed! Some one give me a reason not to buy more!
After Tuesday's market close, Boardwalk Pipeline Partners BWP published its 10-K filing, which contained an admission that cost overruns on its major projects are material. The company now estimates a total cost of $4.5 billion, up from its initial estimate of $3.7 billion. The language used in the 10-K highlights the risk of not completing the project on time or under the revised budget. The $800 million increase in estimated project costs alone will require Boardwalk to access the capital markets and result in substantial equity dilution. Additional delays or cost overruns will only add to Boardwalk's capital requirements and subtract from the value of the firm.
First, like factoids I hold a significant position in BWP. I am continuing to hold as I have seen nothing to warrant selling.
Second, chub- you indicate the cost overruns will "require Boardwalk to access the capital markets and result in substantial equity dilution." The first part is absolutely correct - sort of - as BWP had already planned on 2.8 BILLION in new equity and debt placements in 2008. The change while significant in a dollar amount is only about 10% in relative terms and 5% when you look at the post construction company.
Will you get dilution from this $3B of new debt and units - NO. Once te pipes go into service the money the company earns will provide sufficient additional cash flow to provide a significan increase in DCF. Again remember there are interstate pipelines and the owners are guaranteed a return by FERC - barring negigence or some other outlandish act.
The difference between the previous cost and new one is a bit under 5%. Is this substantial - I do not know, do you? A rational reaction by the market would be a MAXIMUM 5% reduction in the share price. The joke is the long term result of this will be minimal unless the credit and equity markets completely shut down. That would result in all of Loews going BK and the pipeline not being completed. I doubt anyone is going to let that happen.
The other language about the risks of not completing the projects on time are standard boilerplate language. BWP has certainly made some questionable moves in trying to do too many projects all at the same time. They added to the problem by changing contractors in the middle of construction. But the company for a long term investor will produce an excellent steady return on their investment.
Third, I'm not happy but time will help me get over it.
BWP has a big organizational change during the month of March to June. The management of GS takes over the original
management of TXG. Unfortunely, the new mangement does not
how to run the pipeline. And lots of experienced staffs are
being force to take early retired program at end of 2006.
There are 4 expension projects executed at the same time and
they already lose of $5 millions for a project around August. There are lots of outstanding debt waiting to pay
from 2010. You tell me is this good outlook for a long run?
The irrational but persistent no1matemary wrote: "I believe a stock that grows it's dividend .17-.44 . . . "
First off, the 17 cent DISTRIBUTION [it is NOT a dividend] is a prorated partial quarter distribution. Using a partial distribution to then compute a pace of distribution growth will result in a huge error in the pace of distribution growth.
Second, look at the pace of distribution growth by quarter. Starting with the most recent increase and going back three quarters, the pace of growth is 2.3%, 3.6%, 3.7%, and 5.2%. That is one heck of a bad trend. The good news - the distribution growth will probably stabilize around 8%/annum or maybe a tad higher.
If BWP has a forward CAGR of distributions of 8%, then that puts it around sector average. If BWP is an average distribution grower, then it should be an average distribution yielder. And the current non cap weighted pipeline sector average yield is 6.11% while BWP yields 5.75%.
BWP's current 2008 EPS projection is $1.88 vs. $1.84 for 2007 - which is only 2.17% growth - one of the slowest growth rate projections in the sector. It is month end - and I am still gathering and inputing data to get a consensus DCF [and no1matemary - why are you not using distributable cash flow numbers to calculate YOUR valuations?] 2007 and 2008 DCF growth estimates using my August ending numbers was 1% and 7% growth. And 7% growth would be half the sector average projection for 2008. AG Edwards [the one brokerage for which I have gathered and input the data] did increase the BWP DCF estimates for both 2007 and 2008 - so that valuation picture may look better after I find and input the September data.
Bottom line - until the organic projects start coming on line [and there is not a huge pipeline of those] - BWP may be in for a few quarters of having at or below sector average performance in distribution growth and unit price appreciation.
No1matemary - you only asked for one reason - and I believe I just gave you several. And this comes from someone who has owned units in BWP for some time.
Bob a.k.a. Factoids