Prudent Investors are Holding Crestwood (CEQP) Stock: Here's Why
Crestwood Equity Partners LP CEQP is well poised for growth on the back of an extensive network of pipelines used for natural gas gathering and processing. Yet, its high debt burden is concerning.
Headquartered in Houston, TX, Crestwood is primarily involved in providing infrastructure solutions in major U.S. shale plays like the Bakken Shale, Delaware Basin, Powder River Basin, Marcellus Shale and others. With a market cap of $1.8 billion, the partnership is engaged in creating long-term value for unitholders. The stock has surged 50.7% in the year-to-date period compared with the industry’s 25.4% growth.
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Estimates
The partnership’s bottom line for 2021 is expected to rise 4.4% year over year. Also, the top line is expected to rise 65.6% year over year in 2021.
Let’s take a closer look at the factors that substantiate its Zacks Rank #3 (Hold).
What’s Favoring the Stock?
Crestwood’s free cash flow after paying distributions is now expected within $150-$180 million, reflecting an increase from the previous projection. The amount can be used for reducing the debt burden. To further enhance financial flexibility, the partnership divested its joint venture Stagecoach Gas for about $1.2 billion. Crestwood intends to use the cash proceeds to accelerate deleveraging and repay outstanding borrowings under the revolving credit facility.
Its footprint in Barnett Shale, Bakken Shale, Delaware Basin, Marcellus Shale and other regions will enable high utilization of the storage space. The partnership’s storage capacity of 35 Bcf of natural gas, 1.6 million barrels (MMBbls) of crude oil and 10 MMBbls of NGLs are appreciable, as U.S. upstream activities are expected to increase.
For the rest of 2021, it anticipates higher volumes from the Bakken, Powder River Basin, Delaware and the Barnett Shale as incremental wells are connected to the gathering systems, and producers continue to operate rigs as well as completion crews across the diversified footprint. Overall, 2021 adjusted EBITDA is now expected within the $570-$600 million range due to the Stagecoach divestment. The mid-point of the range is still greater than the 2020 figure of $580.3 million.
What’s Weighing on It?
However, certain factors remain causes of concern.
As of Jun 30, 2021, the partnership had only $16.6 million in cash and total debt of $2,621.8 million. It had a long-term debt to capitalization of 62%, significantly higher than the industry average. This can affect its financial flexibility. Also, market backwardation is hurting the NGL marketing and logistics segment. Nevertheless, we believe that a systematic and strategic plan of action will drive the partnership’s long-term growth.
Stocks to Consider
Some better-ranked stocks from the energy space include Delek Logistics Partners, LP DKL, Cheniere Energy, Inc. LNG and Kinder Morgan, Inc. KMI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Delek Logistics’ bottom line for 2022 is expected to surge 15.7% year over year.
Cheniere Energy’s bottom line for 2021 is expected to surge 104.3% year over year.
Kinder Morgan’s bottom line for 2021 is expected to rise 48.9% year over year.
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