The units of natural gas pipeline operator Energy Transfer Partners LP (ETP) soared to a 52-week high of $55.44 on Dec 27, 2013, buoyed by a slew of positive developments. The closing price of the partnership, as of the said date, was $55.38, representing an impressive year-to-date return of 23.75%.
Why the Bullishness?
Recently, ETP sold off the New England Gas Company (“NEG”) assets to regulated distribution utility, Liberty Utilities Corp. The transaction closed for a consideration of $60 million. NEG is a unit of ETP’s wholly owned indirect subsidiary, Southern Union. The NEG asset sale indicates ETP’s intention to divest its non-core assets in order to deliver value to its shareholders.
Moreover, ETP is well positioned to compete in the natural gas midstream and transportation & storage businesses with its geographically-dispersed asset mix. The partnership has a significant market presence in each of its operating areas located in major natural gas-producing regions of the U.S.
Additionally, ETP is ideally situated to benefit from increasing production from unconventional sources of natural gas. With the largest intrastate system in Texas and expanding interstate assets, the partnership is connected to nearly every natural gas shale play in North America, including the Haynesville, Fayetteville and Barnett shales.
However, acquisitions have historically played a major role in ETP’s growth profile and are expected to remain significant in the future as well. Hence, although the shares of ETP rose to a 52-week high, the partnership may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.
ETP holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Stocks to Consider
One can look at better-ranked players in the energy sector like Athlon Energy Inc. (ATHL), Tesco Corporation (TESO) and Harvest Natural Resources Inc. (HNR). All the stocks sport a Zacks Rank #1 (Strong Buy).
Read the Full Research Report on TESO
Read the Full Research Report on HNR
Read the Full Research Report on ATHL
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