Bank of America Merrill Lynch has refreshed a huge coverage list of master limited partnerships, or MLPs. The firm has shown that forty-eight MLPs in its coverage universe have declared their third-quarter cash distributions, with an average payout raise of 2.4% sequentially and an average gain of 7.6% from a year ago. Higher distributions are expected ahead as well.
The team's analysts have updated ratings, estimates, distribution expectations and price targets for many key MLPs. We have kept these as short as possible in order to keep the entire list from going on and on. That being said, many MLPs with no changes of note were screened off the list, even if Merrill Lynch noted these.
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24/7 Wall St. refers to the distributions as a yield equivalent, but investors know, or need to know, that these quarterly distributions are a combination of dividend income and a return of capital.
Phillips 66 Partners L.P. (PSXP) saw an update in the model to incorporate the second-quarter filing, noting that the analyst team's forward-looking forecasts do not materially change given the partnership was not publicly traded during the second quarter of 2013. Phillips 66 Partners screens out with a yield equivalent of only 1.9% currently.
Enterprise Products Partners L.P. (EPD) saw an adjusted cash distribution estimate from the team, but this reflects a more moderate growth trajectory. Enterprise was shown as having $8 billion in capital projects under construction with in-service dates through 2015. Bank of America showed revised distribution estimates in 2013/14/15 of $2.75/2.97/3.21 per L.P. unit (from $2.76/2.99/3.20). Enterprise is the king of MLPs, with a $58 billion market cap, and its yield equivalent is currently about 4.3%.
Martin Midstream Partners L.P. (MMLP) was adjusted lower on third-quarter EBITDA to $35 million, versus a prior $37 million. The team was being more conservative around seasonal factors, as the second and third quarters are typically weaker than the first and fourth quarters.
Magellan Midstream Partners L.P. (MMP) was updated to reflect its $300 million senior note offering, along with the announced expansion of the Longhorn pipeline and an above-forecast distribution for the third quarter. The firm raised Magellan Midstream's price target to $62 from $60, based on a 4.25% target yield. Magellan is thinly traded and has a small $1.3 billion market value, but its yield equivalent is high at 6.4%.
MPLX L.P. (MPLX) saw its price target raised to $40 from $39, based on a 3.75% yield and on Merrill Lynch's fourth-quarter estimates. The firm adjusted its model to include the smaller-than-expected third-quarter distribution. MPLX is also thin in trading volume, but its market cap is nearing $3 billion, with a lower yield equivalent of 3.2%.
Genesis Energy L.P. (GEL) saw its price target raised to $55 from $54, based on a target yield of 4.25% on the firm's annualized expected fourth-quarter cash distribution of $2.34 per L.P. unit. Genesis has a $4.2 billion market value and a yield equivalent of about 4%.
Spectra Energy Partners L.P. (SEP) was updated to incorporate the previously announced $1.2 billion drop-down of Spectra's remaining U.S. Transmission assets, a 50% interest in the Express-Platte crude oil pipeline and 33% interest in each of the Southern Hills and Sand Hills natural gas liquids pipelines. Its latest distribution was slightly higher than what the firm had expected. Spectra Energy Partners is worth about $4.75 billion and comes with a yield equivalent of 4.6%.
Targa Resources Partners L.P. (NGLS) and Targa Resources Corp. (TRGP) were updated to reflect third-quarter cash distributions and dividends slightly above the firm's estimates. Merrill Lynch raised its price target on Targa Resources Partners to $57 from $55, based on a target yield of 5.75%. The team also raised the price target for Targa Resources to $80 from $71, based on a target yield of about 3.75% from 4.0% previously expected.
The gains are not universal as you can see, but overall MLP expectations remain positive. The Merrill Lynch MLP report said:
We think the recent price moves represent somewhat of a double-edged sword for MLPs. On the one hand, burgeoning crude oil production in the U.S. means the need for more infrastructure. The recent reopening of different crude oil grades also points to the potential for better fourth quarter earnings from MLPs engaged in crude oil marketing. However, lower crude oil prices could potentially slow the trajectory of onshore U.S. crude oil production.