Goldman Sachs Sees Growth Potential In Buckeye Partners Despite Earnings Miss

Buckeye Partners BPL reported 4Q10 EPU of $0.76, below Goldman Sachs' estimate/consensus in a quarter dominated by merger noise; BPL merged with general partner Buckeye GP Holdings in November 2010. Its core Pipeline and Terminalling/Storage segments reported operating income of $49 mn/$24 mn, right in line with forecasts. Goldman raises 2012-14 estimates by 1%-3% to $3.95/$4.15/$4.35 as it adjusts tariff assumptions on its Pipeline assets to account for higher inflation expectations and a recent FERC ruling. However, this positive adjustment is partially offset in 2011-12 by Goldman's expectation that low natural gas prices will limit volatility and, consequently, returns on its natural gas storage assets. Goldman raises its yield-based 12-month target price for Buckeye by $1 to $76 that implies 23% total return potential, following the natural roll of its quarterly distribution. It continues to assume a 5.5% company-specific yield, a 100bp premium to the group, and 6.5% 12-month forward distribution growth rate. Risks include renewed deterioration of economic growth and a slower pace or less accretive rate of asset acquisitions. Goldman Sachs has a CL-Buy on BPL BPL is trading higher at $65.22