Oppenheimer is returning to coverage on the energy master limited partnerships (MLPs), and it is focusing on what it calls the energy value chain. The energy value chain encompasses the entire MLP sub-sector areas, and the Oppenheimer team is intent on finding the best value for investors in a sector that has had a tremendous run in 2013.
The Oppenheimer analysts are separating themselves from other Wall Street firms in their coverage in some interesting ways. They have a bias towards investing in higher distribution growth, even if the yields are lower. They also have a bias for owning the general partners (GP) due to their typically incentive distribution rights structure. Here are the top MLP names to buy at Oppenheimer. The first four stocks are highlighted as their top picks.
EQT Midstream Partners L.P. (EQM) has everything the Oppenheimer team is looking for: low-risk, fee-based contracts in an attractive region, low financial leverage, high distribution growth and coverage and a supportive parent with assets to sell. Oppenheimer has a $55 price target for the stock. The Thomson/First Call estimate is at $54. Investors are paid a 3.4% distribution which Oppenheimer thinks may grow to 4.3% in 2014. Remember, MLP distributions may include return of principal.
New Source Energy Partner L.P. (NSLP) is definitely a name for investors interested in yield. While the company faced some issues in the second quarter due to flooding in some of its drilling areas, production is back to normal and management is very positive for the remainder of 2013. Oppenheimer has a $23 price objective, while the consensus is at $24. Investors are paid a stellar 11% distribution.
Seadrill Partner LLC's (SDLP) current fleet of offshore drilling rigs at its parent, Seadrill, is young and highly contracted for with major oil companies. The balance sheet is also well positioned currently, giving the company some flexibility with business execution. Oppenheimer's price target for the stock is set at $35, and the consensus target was not posted. Investors are paid a 5.4% distribution.
Tesoro Logistics L.P. (TLLP) is an Oppenheimer favorite, especially after the pullback in the stock price. The company has strong fee-based contracts that increase the likelihood of consistent increases in the distribution. The Oppenheimer price target is posted at $61, while the consensus is at $63. Shareholder are paid a 3.8% distribution.
Breitburn Energy Partners L.P. (BBEP) is another high-yielding name that makes the cut at Oppenheimer. The company recently purchased some significant oil and gas assets in the Oklahoma panhandle for $846 million that is expected to increase its production by 28%. This may help quiet critics that have been concerned over distribution maintenance. Oppenheimer has placed a $21 price target on the stock, which is the same as the consensus figure. Investors are paid a whopping 10.9% distrubution.
LRR Energy L.P. (LRE) is another top stock to buy that has seen significant insider buying. CEO and Chairman of the Board Eric Mullins recently purchased 16,750 shares of the stock. It always looks good when the top management is buying the stock of the company they work for. Oppenheimer has an $18 price target, and the consensus is pegged at $16.75. Shareholders are receiving a huge 12.9% distribution.
Mid-Con Energy Partners L.P. (MCEP) is a top stock to buy at Oppenheimer and also recently was upped to a buy at Robert Baird. With strong second-quarter earnings and solid prospects for the balance of the year, the company may be under the radar of most investors. The Oppenheimer price target is at $28. The consensus target is at $27. Investors are paid a solid 8.6% distribution.
Memorial Production Partners L.P. (MEMP) also has seen a tremendous amount of insider buying. As of the end of last year, the company had 609 billion cubic feet of natural gas equivalents. Oppenheimer has put a $24 price target on the stock, and the consensus target is at $24.50. Investors are paid a 10.1% distribution.
The Oppenheimer team is very bullish on the MLP asset class as a whole going forward. Top stocks to buy that can increase their distribution provide a solid hedge for investors concerned about rising interest rates. Plus, the tax advantage to owning MLPs makes great sense for investors looking to lower their tax burden on income producing investments.