UPDATE: J.P. Morgan Upgrades Inergy LP to Overweight Following Crestwood Merger Announcement

In a report published Wednesday, J.P. Morgan analyst Jeremy Tonet upgraded the rating on Inergy LP

from Neutral to Overweight, and raised the price target from $21.00 to $27.00. In the report, Tonet noted, “We believe that the recently announced Crestwood merger accelerates NRGY's transition to a higher growth MLP through unleashing the power of the IDRs. Before the merger, 1H13 IDR payments totaled just $2.9mm for NRGY, constituting just ~4% of reported 1H13 DCF. As such, the GP leverage was overwhelmed by the rest of NRGY's cash flows, weighing down growth potential. On a pro-forma forward looking basis, we believe GP payments could represent roughly one-third of NRGY's DCF, thereby providing increased leverage to the IDRs and the potential for top tier distribution growth over the course of 2014. Moreover, NRGY will now more closely approximate a pure play GP with improved trading liquidity, which we believe commands significant scarcity value in the market today. Although we see the deal as beneficial to NRGM, we believe that the distribution of 56.4mm NRGM units to NRGY unitholders could create an overhang in NRGM.” Inergy LP closed on Tuesday at $24.34.