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  • racehorse9 racehorse9 Jun 30, 2011 3:41 PM Flag

    NRGY still looks overpriced to me

    Price -to-Book is a meaningless calculation unless you include ROE.....Better yet for MLP'S what is the DCF Return on Equity (book)??...

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    • Sure, cash flow is more meaningful but it does not wash away the reality that NRGY has paid 1/2 billion in goodwill which is blue sky. That with a sector that is out of favor. It is better to own one of the other investments and come back into NRGY a year from now after the sector looks better.

      I would rather collect the same dividend in a company where the shares are climbing with less negativity by the analysts.

      I think the other companies mentioned could go up 5-10% over the next year and agree with Citi, that NRGy could go down 10%.

      • 1 Reply to richardleeds
      • NRGY is about 60% propane and 40% midstream. Propane fundamentals are poor. Most of the increase in distributable cash flow from the propane business comes from buying smaller companies at attractive prices. I don't remember any such acquisitions in the last six months or more but that may change due to the poor propane fundamentals. In the past, most of NRGY's midstream business was gas storage and related pipelines in the NE. Recently NRGY made a large purchase of natural gas storage assets in Texas. This purchase was made at a relatively high multiple and the fundamentals of the gas storage business are not particularly good today. The gas storage facility in Texas does have expansion potential, however, so it should turn out to be a good acquisition in the long run. NRGY recently bought out their general partner at a hefty premium. It will take a while to digest this purchase.

        In short, the near term growth prospects for NRGY do not look very good to me. The market agrees, having cut the price of NRGY units to where the distribution is >8%, implying that the market sees little near term distribution growth and possibly some distribution risk. For traders and those able to time market moves, selling NRGY and buying it back in the future, or buying something with better near term growth potential, may be the right decision. Not being able to time the market myself, I'll just hold my small position in NRGY until their growth prospects improve.

        Wells Fargo has NRGY as one of its top picks but it is not clear why. I suspect it is a combination of higher than average yield and lack of recent price appreciation, which are really two sides of the same coin. My expectation is for flat distributions for the next couple of quarters with slow distribution growth resuming next year. GLTA.