NuStar Upgraded to Neutral - Analyst Blog
25 Februar 2013 - 7:45PM
Zacks
On Feb 12, 2013, we upgraded San Antonio-based publicly traded
partnership NuStar Energy L.P. (NS) to Neutral
from Underperform, reflecting a balanced risk/reward profile. Our
new investment thesis is supported by a Zacks Rank #3 (Hold).
Why the Upgrade?
We like NuStar for its diversified asset base and robust
distribution-growth prospects. A strong pipeline of organic growth
projects and contribution from acquisitions provide the partnership
with an above peer-group average distribution coverage ratio.
Detailed Analysis
NuStar has a track record for consistent distribution growth – its
current quarterly distribution of $1.095 per unit ($4.38 per unit
annualized) is up approximately 120% over its distribution rate at
the time of its IPO in 2001.
Furthermore, the majority of NuStar’s business is derived from an
attractive set of fee-based storage and transportation assets that
support the U.S. and international energy infrastructure.
Over the last few years, the partnership has consolidated its
business through a combination of organic efforts and accretive
acquisitions. We also welcome NuStar’s recently formed asphalt
joint-venture partnership with a private investment firm that is
aimed at reducing the pipeline operator’s unpredictability about
its future cash flows, while trimming the requirement for large
working capital investment.
However, we believe these positives are already reflected in its
current valuation, so there is not much upside from the current
price level.
NuStar – which was spun off from the U.S. refiner Valero
Energy Corp. (VLO) in 2006 – recently reported grim
fourth-quarter 2012 results, with earnings per unit (EPU) of 25
cents that came lower than the Zacks Consensus Estimate of 31
cents. Comparing year over year, reported result declined from the
adjusted profit of 30 cents. The underperformance was mainly on
account of higher operating expenses in its storage business.
We also remain concerned about NuStar’s high debt levels, which
leave the partnership vulnerable to an extended downturn. As of Dec
31, 2012, NuStar had debt (including current portion) of $2.4
billion, representing a debt-to-capitalization ratio of around
48%.
Stocks that Warrant a Look
While we expect NuStar to perform in line with its peers and
industry levels in the coming months and advice investors to wait
for a better entry point before accumulating shares, one can look
at McDermott International Inc. (MDR) and
Patterson-UTI Energy Inc. (PTEN) as good buying
opportunities. These energy equipment suppliers – sporting a Zacks
Rank #2 (Buy) – have solid secular growth stories with potential to
rise from current levels.
MCDERMOTT INTL (MDR): Free Stock Analysis Report
NUSTAR ENERGY (NS): Free Stock Analysis Report
PATTERSON-UTI (PTEN): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
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