Morningstar has a new research report out stating they believe the fair value of these units is 26 bucks. They are using a distributable cash flow figure of 1.06 billion for 2016 vs managements guidance of 1.08 - 1.26 billion. That implies at coverage ratio of just .74, which they take to mean a distribution cut is in order unless pricing/volume gets stronger sooner rather than later. Their estimate is a cut of 16% to bring the coverage ratio back up to 1.05. that implies a yield of just under 10% at the current price, or 10.2% at 26 bucks. I have to think we're at or near bottom here.
Yes, distribution coverage is under 1.0. They have a decent balance sheet and steps to increase fee based flow I believe will bring coverage back to 1.0 as management has alluded. They are executing well on their strategy. The unit prices have just gotten too cheap. there is so much more value here than the market is giving them credit for. I averaged down at the close yesterday. If it goes any lower, i'll be buying more. It'll take some time to pay off, but I think the payoff will be well worth the wait.