Units of MarkWest Energy Partners L.P. (MWE) hit a 52-week high of $67.61 on May 13. In fact, the Denver Colorado-based publicly traded energy pipeline partnership has seen its stock price climb some 30% since the beginning of the year. This price appreciation can be attributed to its high-quality and diverse portfolio of midstream assets, as well as its proven track record of supporting producers in the growth of shale plays and the steady improvement in its liquidity/cash flow position.
Why the Bullishness?
MarkWest generates stable and recurring revenues by way of long-term fee-based contracts. It is one of the largest processors of natural gas in the Northeast and is the largest gatherer of natural gas in the prolific Carthage field in East Texas. Additionally, the partnership has a number of other gas gathering and intrastate gas transmission assets in the Southwest, primarily in Texas and Oklahoma
MarkWest’s prospects are particularly encouraging in the Marcellus Shale play in western Pennsylvania and West Virginia. With proven track record of supporting producers in the growth of shale plays, the partnership is in a great position to participate in the expansion of infrastructure that will be required for the development of the Marcellus Shale leaseholds.
MarkWest has a track record for consistent distribution growth - its current quarterly distribution of 83 cents per unit ($3.32 per unit annualized) is up 232% over its distribution rate of $0.25 per unit ($1.00 per unit annualized) at the time of its 2002 IPO.
However, we think the current valuation is fair and adequately reflects the partnership’s future growth prospects. MarkWest’s core business – natural gas processing – is also faced with a higher degree of commodity price exposure than most of its peers. This is expected to further limit its ability to generate positive earnings surprises.
This accounts for MarkWest’s current 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
With MarkWest units trading at all-time highs, any upside from here may be limited. Meanwhile one can look at Enbridge Energy management LLC (EEQ), Kinder Morgan Management LLC (KMR) and Summit Midstream Partners L.P. (SMLP) as attractive investments. These energy pipeline partnerships – sporting a Zacks Rank #2 (Buy) – offer value and are worth accumulating at current levels.
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