UPDATE: Morgan Stanley Downgrades Spectra Energy Partners LP, Reiterates PT on Less Relative Upside

In a report published Wednesday, Morgan Stanley analyst Stephen J. Maresca downgraded the rating on

from Equal-Weight to Underweight, but reiterated the $42.00 price target. In the report, Morgan Stanley noted, “Revaluation of the reconfigured SEP is now more complete. With units up 17% since mid-June (relative to a 3% gain the AMZ), SEP now trades at a 4.5% yield and 19.3x 2014e P/DCF (MSe medians of 5.7% / 15.2x), largely reflecting the scale and organic growth potential of the dropdown of U.S. Transmission and Storage assets announced from general partner SE. We see 11.5% distribution growth in 2014e and 7.0% in 2015e driven by an attractive $8b backlog of attractive organic projects, reflecting a blue-chip gas pipeline asset base, and larger footprint. However, challenges of a higher general partner burden on growth (SE will receive ~22% of all cash paid from SEP in 2014e; currently in the 50% high splits) may drag on SEP's potential at its current value to perform. Our $42 price target implies -4% one-year total return potential.” Spectra Energy Partners LP closed on Tuesday at $45.65.