Why DCP Midstream Expects a 12% Decline in 2016 EBITDA
How Will DCP Midstream Partners Fare in 2016?
DCP Midstream’s 2016 financial guidance
DCP Midstream Partners (DPM) expects its 2016 EBITDA and distributable cash flows to be between $565 million–$595 million and $465 million–$495 million, respectively. At these midpoints, these estimates are 11.6% and 16.1% less than 2015 numbers, respectively.
The partnership’s 2016 financial guidance is based on commodity prices of $45 per barrel for WTI (West Texas Intermediate) crude oil, $2.50 per MMBtu (million British thermal units) for natural gas, and $0.42 per gallon for NGLs (natural gas liquids). The assumption for natural gas looks unrealistic considering the commodity is currently trading close to its 17-year lows due to weak demand and supply glut. The natural gas supply glut is expected to persist at least through 2016. For more details, read What Drove MLPs 7.2% Higher Last Week?
DPM has assumed a flat distribution of $3.12 per unit for 2016, resulting in a distribution coverage of ~1.0x. Plus, “the Partnership anticipates 2016 expansion capital expenditures in the range of $75 million to $150 million and maintenance capital expenditures in the range of $30 million and $45 million.”
Analysts’ targets for DPM
At a broader level, 46.2% of analysts rate DCP Midstream Partners a “buy,” 38.5% rate it a “hold,” and the remaining ~15.4% rate it a “sell.” The median target price of $24 for DPM implies a ~6.7% price return in the next 12 months from its March 8, 2015, closing price of $22.6.
DPM’s peers Enable Midstream Partners (ENBL), Crestwood Equity Partners (CEQP), and Cone Midstream Partners (CNNX) have “hold” ratings from 60.0%, 88.9%, and 55.6% of analysts surveyed, respectively. DPM forms ~0.96% of the Multi-Asset Diversified Income Index Fund (MDIV).
For more company overviews and indicator analyses on master limited partnerships, you can refer to our Master Limited Partnerships page.
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