NuStar Upgraded to Buy

Zacks

On Apr 9, Zacks Investment Research upgraded San Antonio-based publicly traded partnership NuStar Energy L.P. (NS) to a Zacks Rank #2 (Buy).

Why the Upgrade?

NuStar – that was spun off from the U.S. refiner Valero Energy Corp. (VLO) in 2006 – boasts of a diversified asset base and robust distribution-growth prospects. A strong pipeline of organic growth projects and contribution from acquisitions provide the partnership with an above peer-group average distribution coverage ratio.

Detailed Analysis

NuStar has a track record for consistent distribution growth – its current quarterly distribution of $1.095 per unit ($4.38 per unit annualized) is up approximately 120% over its distribution rate at the time of its IPO in 2001.

Furthermore, the majority of NuStar’s business is derived from an attractive set of fee-based storage and transportation assets that support the U.S. and international energy infrastructure.

Over the last few years, the partnership has consolidated its business through a combination of organic efforts and accretive acquisitions. NuStar’s recently formed asphalt joint-venture partnership with a private investment firm is also a welcome move, aimed at reducing the pipeline operator’s unpredictability about its future cash flows, while trimming the requirement for large working capital investment.

Financially, NuStar remains in robust health with a strong balance sheet, improving credit metrics and a favorable debt maturity profile.

Based on the success of the partnership’s operations – particularly in the booming Eagle Ford shale region – analysts are predicting strong earnings growth for NuStar over 2013 and 2014. The 2013 Zacks Consensus Estimate of $2.15 represents earnings per unit growth of a whopping 194% over 2012. The Zacks Consensus Estimate for next year is $2.99, corresponding with an impressive 39% growth.

Other Stocks to Consider

In addition to NuStar, there are certain other energy pipeline partnerships like Delek Logistics Partners L.P. (DKL) and Summit Midstream Partners L.P. (SMLP) that offer value and are worth buying now. Both these firms sport a Zacks Rank #2 (Buy).
 

Read the Full Research Report on NS

Read the Full Research Report on VLO

Read the Full Research Report on DKL

Read the Full Research Report on ^SMLP

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