Goldman Sachs: Tallgrass Energy's 'Strong Growth Already Priced In'

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In a report published Monday, Goldman Sachs analyst Theodore Durbin initiated coverage of Tallgrass Energy GP LP TEGP and Tallgrass Energy Partners LP TEP with Neutral ratings. The price target for TEGP and TEP were set at $35 and $56, respectively.

"Tallgrass owns traditional midstream natural gas and crude oil assets in the Rockies and Midwest, and an affiliated company, Tallgrass Development, owns a 50% stake in the Rockies Express pipeline which could be sold to TEP in the future," the report mentioned.

Analyst Theodore Durbin expresses optimism regarding the near- to medium-term growth of the two companies. He expects TEP to generate distribution growth of 20-25 percent, backed by dropdowns. This would drive a 42 percent CAGR in TEGP dividends.

The companies have stable cash flows, with 85 percent of cash flows coming from “firm fee” contracts that have no commodity price or volume risk, and 98 percent with no commodity risk.

In the report Goldman Sachs noted the attractive financial characteristics as:

  • TEP’s small size, which makes it easier to “move the needle” with growth capital projects
  • TEGP’s “Up-C” structure, which broadens its potential investor base
  • TEP’s strong balance sheet, which adds financial flexibility
  • Tallgrass sponsor incentives, which appear to be aligned with shareholders

Durbin stated that the shares of both TEP and TEGP are trading in-line with peers and the strong growth prospects are already reflected in the share prices.

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Posted In: Analyst ColorInitiationAnalyst RatingsGoldman Sachs
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