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NuStar Energy Slips to Sell

Zacks Equity Research

On Jan 14, Zacks Investment Research downgraded San Antonio-based publicly traded partnership, NuStar Energy LP (NYSE:NS), to a Zacks Rank #4 (Sell).

Why the Downgrade?

The operating environment and growth prospects seem weak for NuStar Energy, as indicated by the decreasing earnings estimates for the partnership. Over the last 30 days, the Zacks Consensus Estimate for the fourth quarter of 2013 fell 5.3% to 36 cents per unit. Moreover, for full-year 2013, the Zacks Consensus Estimate reduced 3.6% over the same timeframe to $1.07 per units.  

Notably, NuStar Energy’s high debt level is a cause of concern, which leaves the partnership vulnerable to an extended downturn. As of Sep 30, 2013, NuStar had debt (including current portion) of $2.5 billion, representing a debt-to-capitalization ratio of 51.0%.

Moreover, over the last few years, NuStar Energy consolidated its business through a combination of organic efforts and accretive acquisitions. We believe that the higher operating expenses associated with this expanded asset base may lead to reduced returns going forward.  

Additionally, unfavorable regulatory changes by the Federal Energy Regulatory Commission (:FERC) would impact the partnership’s results. This will also contribute toward increasing NuStar Energy’s borrowing costs and depressing the market value of its limited partner units.

Stocks to Consider

Not all energy players are expected to underperform the broader U.S. equity market over the next one to three months like NuStar Energy. One can consider better-ranked stocks like Helix Energy Solutions Group Inc. (NYSE:HLX), Matrix Service Company (NASD:MTRX) and Clayton Williams Energy Inc. (NYSE:CWEI). All the stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on NS
Read the Full Research Report on MTRX
Read the Full Research Report on CWEI
Read the Full Research Report on HLX

Zacks Investment Research