Balanced View on Buckeye Partners - Analyst Blog

On Mar 14, we issued an updated research report on oil and gas pipeline operator Buckeye Partners, L.P. BPL. Though the partnership is pretty active on the investment front, its business depends to a large extent on the level of activity at the refiners. Any decline in refining will hurt the partnership's profitability.

Buckeye Partners' earnings per unit in the fourth quarter 2013 missed the Zacks Consensus Estimate, but revenues beat the same. On a year-over-year basis, the partnership's top and bottom lines climbed higher. The commencement of operation at the recently refurbished truck rack at the Perth Amboy terminal and sales from the BORCO facility contributed to the bottom-line growth in 2013.

Buckeye Partners, a Zacks Rank #3 (Hold) stock, closed the acquisition of 20 liquid petroleum products terminals with a total storage capacity of approximately 39 million barrels for $850 million from Hess Corporation in the fourth quarter. This acquisition increased Buckeye's total liquid petroleum storage capacity by approximately 53% to over 110 million barrels and will contribute to earnings growth going forward.

Moreover, Buckeye Partners has reorganized its reporting segments to turn more competitive and realign its business in sync with long-term objectives.  

However, increasing merger and acquisition activities among its customers leads to a shrinking of Buckeye Partners' customer base. The merged entities often start utilizing their own pipeline or storage facilities for transportation or storage of fossil fuels. Since the operating cost of the partnership is fixed, a reduction in sales volume will impact margins.

Buckeye also needs to cope with weather variations that can have an adverse impact on demand. A significant portion of its service area is susceptible to severe weather conditions like hurricanes which damage marine infrastructure and disrupt operations. Service interruptions could impact the business of the partnership.

Key Picks from the Sector

Players in the oil and gas pipeline industry with a favorable Zacks Rank include Valero Energy Partners LP VLP, Magellan Midstream Partners LP MMP and Access Midstream Partners, L.P. ACMP. While Valero Energy Partners sports a Zacks Rank #1 (Strong Buy), both Magellan Midstream Partners and Access Midstream Partners carry a Zacks Rank #2 (Buy).