On Jan 3, 2014, we have reiterated our Neutral recommendation on PVR Partners, L.P. (PVR). The partnership currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
In the previous quarter, PVR Partners’ pro froma earnings per unit missed the Zacks Consensus Estimate and the year-ago figure. This was primarily due to a rise in interest expenses and total expenses, and higher units outstanding.
The partnership’s over-dependence on a limited group of customers for its natural gas midstream and coal royalty revenues is a threat for its upcoming performance. If any of these customers become bankrupt or fail to keep their obligations, PVR Partners’ financial results will be negatively impacted.
On the positive side, we appreciate the partnership’s steady effort towards expansion of its operations besides getting long-term service commitments from the petroleum companies.
Currently, PVR Partners is expanding its footprint in Marcellus and Utica Shale, Cline and Mississippian Lime. The partnership plans to invest $125–$150 million through 2015 to construct a 45-mile natural gas trunkline and allied gathering pipelines in the Utica Shale. The installation of new pipelines while upgrading the existing infrastructure will enhance the partnership’s presence in the region and serve more customers.
Apart from investment in growth projects, the partnership also won service contracts from several upstream players. PVR Partners already entered into service agreements with Hess Corporation (HES) and the associates of Carrizo Oil & Gas and Reliance Group. We believe signing contracts with the oil and gas companies will ensure stable revenue stream for the partnership.
Other Stocks to Consider
Some better-ranked stocks in the same sector include Atlas Energy, L.P (ATLS) and Western Gas Partners LP (WES). All these stocks hold a Zacks Rank #2 (Buy).