|Bid||0.00 x 900|
|Ask||0.00 x 1100|
|Day's Range||8.91 - 9.28|
|52 Week Range||8.91 - 11.89|
|PE Ratio (TTM)||N/A|
|Beta (3Y Monthly)||1.26|
|Expense Ratio (net)||0.85%|
The recent fall off in crude oil prices has dragged energy sector stocks down as well. Last month, West Texas Intermediate crude oil prices declined over 20% while the Alerian MLP Index was down 2.2% on a price-return basis and less than 1% on a total-return basis and the Alerian Midstream Energy Select Index was up 0.5% on a total return basis, according to Alerian. "Taking into account the ~30% decline in oil prices over the last two months, we would argue that midstream is performing in line with its defensive nature," according to Alerian.
Between December 7 and 14, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 7.8%—the biggest fall among major energy ETFs. A fall of 2.7% in US crude oil prices and a fall of 14.7% in natural gas last week could have dragged upstream stocks down.
On December 6–13, major energy ETFs had the following correlations with US crude oil January futures: the Alerian MLP ETF (AMLP): 68.8% the Energy Select Sector SPDR ETF (XLE): 60% the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 58.4% the VanEck Vectors Oil Services ETF (OIH): 2.8%
Antero Midstream Partners (AM) has a median target price of $38.0—compared to its current market price of $26.90, which indicates a potential upside of 41.30% for the next 12 months.
MLP stocks have been on a notable downtrend for a while. So far, crude oil prices have fallen more than 16% in 2018. Crude oil prices influenced the similar movement in MLPs. Increasing production volumes had a positive impact on MLPs’ earnings in the third quarter. However, geopolitical tensions pulled down crude oil prices and MLPs.
Although the turmoil in crude oil prices has dented energy MLPs lately, some of the top-yielding names still seem to catch investors. Energy Transfer (ET) is offering a distribution yield of 8.6%. The Alerian MLP ETF (AMLP), the representative of the top 25 MLPs, is also trading at a yield of 8.6%.
Between November 30 and December 7, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 3.9%—the second-largest fall among major energy ETFs. A rise of 3.3% in US crude oil prices last week wasn’t sufficient to push the upstream energy space into positive territory.
On November 30–December 7, US equity indexes ended in the red. Last week, the S&P Mid-Cap 400 (IVOO), the S&P 500 (SPY), and the Dow Jones Industrial Average (DIA) fell 5.2%, 4.6%, and 4.5%, respectively. Energy stocks form ~5.1%, 5.9%, and 5.2%, respectively, of these equity indexes.
On November 29–December 6, major energy ETFs had the following correlations with US crude oil January futures: the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 77.6% the VanEck Vectors Oil Services ETF (OIH): 77.2% the Energy Select Sector SPDR ETF (XLE): 64% the Alerian MLP ETF (AMLP): 63.9%
Optimism after the G20 Trump-Xi truce drove up soybean prices as the Chinese are expected to resume orders for U.S. agricultural products. Master Limited Partnerships are looking forward to the upcoming OPEC+ meeting this week in Vienna. On the technology side, cloud computing enjoyed rejuvenated investor interest following solid earnings from big players. China and various agricultural commodities like sorghum and corn made this week’s list as the U.S.-China truce should propel U.S. exports to 2017 levels and beyond. Check our previous Ttrends edition at Trending: Cold Weather and Low Inventories Push Natural Gas Prices to Four-Year Highs.
"2018 is the worst year for a 60/40 portfolio since 2011, so far through the first 10 months of the year, and a few things that are performing quite well in that environment are real assets," Jeremy Held, Director of Research at ALP, said at the Charles Schwab IMPACT 2018 conference. Held specifically highlighted the strength in MLPs, arguing that the asset category holds up well during inflationary periods as well as showing resilience through rising rate environments. Consequently, investors may look to something like the ALPS Alerian MLP ETF (AMLP) , the largest and most liquid MLP-related ETF on the market.
Energy Transfer (ET) stock seems to be trading at a discounted valuation compared to its five-year historical average. The stock is trading at a forward enterprise value-to-EBITDA multiple of 11x based on the estimated earnings for the next year. Energy Transfer’s historical average valuation is near 16x. Peers’ average valuation is close to 10x. So, the stock looks expensive compared to its peers. However, Energy Transfer’s strong expected growth above 13% next year likely justifies the premium valuation.
On November 15–21, major energy ETFs had the following correlations with US crude oil January futures: the VanEck Vectors Oil Services ETF (OIH): 99.2% the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 96.2% the Energy Select Sector SPDR ETF (XLE): 94.8% the Alerian MLP ETF (AMLP): 92.6%
On November 8, Western Gas Equity Partners (WGP) announced an agreement to acquire Western Gas Partners (WES) in a unit-for-unit exchange. Once completed, Western Gas Equity Partners is to own ~98% of WES and parent Anadarko Petroleum (APC) will own ~2%. The acquisition is expected to complete in Q1 2019.
MPLX (MPLX) is trading at an attractive yield of ~7.5%. The company’s coverage ratio for the third quarter was 1.47x. With a healthy coverage and conservative leverage, MPLX’s yield looks attractive. MPLX had impressive earnings growth over the years, driven by drop-down assets from parent Marathon Petroleum (MPC). The company reported strong volume growth in the third quarter of 2018.
Energy Transfer’s (ET) MLP subsidiary, Sunoco (SUN), is trading at a high yield of 12%. Sunoco hasn’t raised its distributions for the last nine quarters. As the above graph shows, Sunoco has fallen ~7% year-to-date, outperforming the Alerian MLP ETF (AMLP).
Energy Transfer (ET) paid a per-unit distribution of $0.305 for Q3 2018, which implies a yield of ~8.3%, based on Energy Transfer’s current stock price. Though Energy Transfer Partners’ unitholders had to take an effective distribution cut after the merger with Energy Transfer Equity, Energy Transfer’s yield looks attractive currently. Energy Transfer’s distribution coverage ratio, pro forma for the Energy Transfer Partners-Energy Transfer Equity merger, was 1.73x for Q3 2018.
Energy MLPs had been a favorite for income-seeking investors for nearly two decades. The challenges following the slump in oil prices in 2014–2015 took the wind out of this sector, though. However, as the sector consolidates and companies find ways to survive and grow in the new environment, some interesting opportunities seem to be available for investors. The Alerian MLP Index, a benchmark index for energy MLPs, is trading at a yield of ~8.1%. That’s ~5% higher than the US ten-year Treasury yield.
Enterprise Products Partners (EPD), the largest midstream company by market capitalization and the largest component of the Alerian MLP ETF (AMLP), has risen marginally in 2018. Let’s take a look at how institutional investors played Enterprise Products Partners during the third quarter.
Many midstream companies reported better-than-expected earnings in the third quarter. The earnings were mainly driven by higher oil and gas production and new expansion projects that came online during the quarter. The Alerian MLP ETF (AMLP), which represents the 25 largest MLPs, has returned -3%, while broader markets have returned 4% so far this year. The energy (XLE) sector has fallen more than 7% year-to-date.
On November 8–15, major energy ETFs had the following correlations with US crude oil January futures: the VanEck Vectors Oil Services ETF (OIH): 71.2% the Energy Select Sector SPDR ETF (XLE): 65.5% the Alerian MLP ETF (AMLP): 56.6% the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 37.8%
Energy Transfer (ET) stock is currently trading at a forward enterprise value–to–EBITDA multiple of 12x, based on its expected 2019 earnings. Its five-year historical average valuation is over 16x. Peers’ average is close to 10x. So Energy Transfer stock seems to be trading at a premium valuation to its peers, and it seems inexpensive compared to its historical average. Although Energy Transfer stock looks expensive, its robust expected growth of above 15% next year likely justifies the premium valuation.
On November 1–8, major energy ETFs had the following correlations with US crude oil December futures: the VanEck Vectors Oil Services ETF (OIH): 83% the Alerian MLP ETF (AMLP): 81.8% the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 80.2% the Energy Select Sector SPDR ETF (XLE): 74.4%
The Alerian MLP ETF (NYSE Arca: AMLP) declared its fourth quarter 2018 distribution of $0.1913 on Wednesday, November 7th. The dividend is payable on November 15, 2018 to shareholders of record on November 9, 2018. ALPS Portfolio Solutions Distributor, Inc. is also the distributor for the Alerian Energy Infrastructure ETF and the ALPS|Alerian Energy Infrastructure Portfolio.