We downgrade our recommendation from Neutral to Underperform for Buckeye Partners (BPL) on account of high fuel and diesel price sensitivities which could negatively influence the master limited partnership's short-term top-line growth.
In addition, uncertain outcomes on the airline tariff case and recent proposal for implementation of market-based rates for petroleum product supply to federal regulatory body are issues that will not bode well with the partnership's growth. Other potential risks include unplanned damages to pipeline and plant infrastructures as well as an intense competitive environment.
Over the last five years, the partnership's shares have traded in the P/E multiple range of 10.3x to 25.0x on trailing 12-month earnings. We downgrade our recommendation to Underperform with target price of $44.00 per unit, which is based on 16.4x 2012 earnings estimate.
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