UPDATE: J.P. Morgan Initiates Coverage on Northern Tier Energy LP with Neutral Rating, $21 PT on Balanced Risk/Reward Profile

In a report published Thursday, J.P. Morgan analyst Jeremy Tonet initiated coverage on Northern Tier Energy LP NTI with a Neutral rating and $21.00 price target. In the report, J.P. Morgan noted, “We are initiating coverage of Northern Tier Energy LP (NTI) with a Neutral rating and YE14 price target of $21. NTI's vertically integrated refining platform possesses upstream connectivity to the Bakken and downstream retail gas outlets. The strategic location of the partnership in the Upper Great Plains of PADD II, a net-short product market, gives the partnership a structural advantage in the form of the transportation cost needed to bring the marginal barrel into the market. In addition, NTI's refinery location allows the partnership to source cost-advantaged crude feedstock from the Bakken and Western Canada with lower transportation costs than most competing refineries. Downstream, NTI's retail chain and related supply contracts also help secure dedicated end markets for the refined products that the partnership produces. These factors have all driven premium refining margins at NTI, over and above the standard crack spread. However, despite substantial redundancies at St. Paul Park, the concentration of risk of a single refinery is a key concern. Moreover, lower MidCon crack spreads, tighter WCS and Bakken differentials, as well as 4Q13 FCC downtime, could drive 2H13 distributions 40% lower than in 1H13, leading to price volatility. As such, despite favorable long-term trends, we see a balanced risk/reward profile and recommend waiting for near-term headwinds to pass.” Northern Tier Energy LP closed on Wednesday at $18.56.