MarkWest Energy Partners LP (MWE)
Master Limited Partnerships have been all the rage in the past year or so. The key is knowing exactly what you are investing in, as not all MLPs are gold. MarkWest Energy is in the business of gathering, processing and transporting natural gas as well as the transportation, fractionation, storage and marketing of NGLs (natural gas liquids). They also gather and transport crude oil.
Natural gas prices are at all time lows, while crude remains elevated in price. There is no doubt that our country is working to become both self reliant and smarter when it comes to our energy needs. But people like T. Boone Pickens and many others are pushing for us to exploit our huge natural gas resources, which will benefit MWE and many MLPs.
Company Description & Developments MarkWest in an MLP formed in 2002 and is a leading provider of midstream (pipeline) natural gas and energy services. The MLP structure gives investors liquidity and certain tax advantages.
They have a strong presence in the Marcellus Shale, Huron/Berea Shale, Woodford Shale, Granite Wash, and Haynesville Shale, which are all emerging resource plays that are expected to be a significant source of domestic natural gas production.
The company recently announced expansion plans for the Marcellus and Utica shales that include more than 600 million cubic feet per day (MMcf/d) of additional processing capacity and 140,000 barrels per day (Bbl/d) of incremental fractionation capacity. Once complete, MarkWest will operate approximately 2.3 billion cubic feet per day (Bcf/d) of processing capacity and nearly 300,000 Bbl/d of fractionation capacity serving the Northeast shales, including the Huron, Marcellus, and Utica.
MarkWest is probably not a company that you are familiar with, but they are a premier player in the space and will continue to have upside if the price of natural gas rebounds and our consumption of it and other energy resources increases. Both of which are likely.
Financial Profile MarkWest Energy is a mid-cap (5.52 billion) company that is trading at about 63 times trailing earnings (P/E). Looking forward, Zacks Consensus Estimates are calling for that number to drop closer to 21 with no change in price from these levels 12 months from today. Keep in mind that MLPs like MarkWest generally return profits in the form of quarterly dividends paid out to LP unit holders (shareholders)
MarkWest jumped from a Zacks Rank 3 to Rank 1 back on the 10th of November. Since then it has floated between a rank of 1 and 2 until hitting number 1 again on the 10th of January.
The pipeline company reported a quarterly sales increase of 27% at their last earnings report. It was a strong Q3 report; annual sales leapt 99% compared to 2010. Total sales were roughly 1.18 billion in FY2010. MWE saw earnings growth of 700% in the same year over year period. MarkWest is expected to earn $2.26 in FY2011 according to the Zacks Consensus Estimate.
Earnings Estimates We only saw two upward revisions in the past 90 days. The two analysts increased their estimates for the current quarter and FY2012. MarkWest will report Q4 (2012) results on February 29th.
Expectations are for MarkWest to generate $0.52 in income this quarter. Of the 8 analysts who cover MWE, the consensus is for the company to grow earnings by 246.92% in FY2011 and roughly 28% in FY2012. The percentage gains look excessive because MWE started from a very small annual EPS number. In terms of the magnitude of analyst estimate trends, we are seeing mixed consensus estimates depending on the quarter. Natural gas pricing and discovery variables can cause this.
MarkWest beat estimates last quarter by 72% and has managed to exceed consensus estimates for the past year by an average of about 48%. In the past 12 months, the stock has responded well after earnings releases.
Market Performance & Technicals MWE’s chart looks like a stairway to heaven. Since its October lows the stock has been moving steadily higher, making new 52 week highs since mid-November.
MWE has maintained its price above the 50 and 200 day moving averages since mid-October and has not dropped below either. The 50 day currently stands at $55.25 and the 200 at $49.31. You can look to both those levels for support. There is also some consolidation around the $54 level that should be a “sticky” point for MWE if is pulls back from here, which I would expect.
MarkWest is no doubt a momentum stock and the trend remains bullish. It has also been a banner year for MWE being that it has exceeded the S&P 500 by over 33% over the past 12 months. Watch for continued strength in this energy company.
Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.
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