Bank of America Upgrades Nine Midstream Energy MLPs

Bank of America Merrill Lynch issued ratings changes for midstream energy Master Limited Partnerships Wednesday.

Analysts led by Gabe Moreen saw “MLP illiquidity, likely forced investor selling and resulting price swings as once again presenting opportunity for patient MLP investors.”

The report concluded that “MLP sector volatility may persist until: 1) oil prices find some semblance of a bottom, 2) high yield markets also show evidence of real stability and, 3) retail sentiment gets a bit more negative.”

Moreen noted that “given recent losses, we also emphasize tax loss selling season looms and is now a factor through yearend for not just a handful of MLPs but pretty much the entire sector. All these factors may mean the bottom in MLPs has not occurred – yet.”

The report mentioned that Moreen would rather be early than not make a call.  The recent turmoil was the reason for the firm to upgrade several MLPs with one downgrade:

Boardwalk Pipeline Partners, LP BWP

Upgraded from Neutral to Buy

“We would not be surprised to hear more announcements around organic growth projects, particularly to support Gulf Coast LNG export projects. We note BWP’s natural gas pipeline systems could connect to several Gulf Coast LNG export projects.”

EnLink Midstream, LLC ENLC 

Upgraded from Neutral to Buy

“We believe the recent sell-off in ENLC, the general partner of ENLK, is overdone and presents an attractive entry point due to ENLC’s low commodity sensitivity post-merger with DVN midstream assets.”

Magellan Midstream Partners, LP MMP

Upgraded from Neutral to Buy

“We believe MMP’s recent pullback is unjustified given the partnership’s strong organic growth outlook and relatively limited direct commodity price exposure.”

Midcoast Energy Partners, LP MEP

Rated Underperform with Price Target lowered from $21 to $18

“We continue to believe there is execution risk around MEP’s drop-downs from EEP. Its initial drop-down was more expensive than we had originally estimated and we believe further drop- downs could be pricey.”

NuStar Energy Partners, LP NS and NuStar GP NSH

Upgraded from Underperform to Neutral; NSH Price Target raised from $35 to $38.

“Given the increased certainty in NS’ distribution and potential for additional organic growth projects, we believe NSH is deserved of a target distribution rate more in-line with its general partner peers...” 

Sunoco Logistics Partners, LP SXL 

Upgraded from Neutral to Buy

“SXL’s recent underperformance is unjustified given the partnership’s crude oil logistics footprint that is in the midst of significant expansions and exposure to NGL exports.”

Susser Petroleum Partners, LP SUSP

Upgraded from Neutral to Buy

“SUSP is deserved of a premium valuation given its high growth and drop-down potential – and we note its margins should benefit from declining gasoline prices.”

Teekay Offshore Partners, LP TOO 

Upgraded from Neutral to Buy

“We see TOO’s contract structure as attractive. We also see valuation as more forgiving after the recent pullback. TOO units have declined 29% from its 52-week high.”

Western Gas Partners, LP WES 

Upgraded from Neutral to Buy

“Through organic growth projects and potential drop-downs from APC, we estimate WES can achieve a mid-double digit distribution growth rate over the next couple years.”

World Point Terminals, LP WPT

Downgraded from Outperform to Neutral

“WPT’s storage assets are contracted out mostly through evergreen contracts. Weakening crude prices could hamper demand for storage assets in the medium to long-term.”