Summit Midstream Partners Is No Longer A Buy, Says Baird

In a report published Monday, Baird analyst Ethan H. Bellamy downgraded the rating on Summit Midstream Partners LP SMLP to Neutral, while reducing the price target from $39 to $26, citing that a deteriorating energy macro environment was posing challenges to growth. Summit Midstream Partners had revised its 2015 drop down guidance to the "low end or even below the low end" of its prior drop down range. A gloomy capital market and "the development cycle of to-be-dropped assets" had increased the probability for "further delays in management's original $400MM-800MM per year drop down program (concluding year-end 2017)," Bellamy said. Although management indicated that 2016 could be a "big year" for its drop down program, conference call commentary related to "wide bid/ask spreads, which invariably impedes sponsor drop downs as well," raises concerns that Summit Midstream Partners' unitholders may witness "lower-than-anticipated accretion economics" in case the macro headwinds persisted, Bellamy commented. In the report Baird noted, "While MVCs protect ~50% of EBITDA by our estimate, we are cautious on producer economics in key-to-SMLP basins that may structurally impair long-term upside." Bellamy added, "We await action by SMLP's GP to rectify long-term economics. Until then, we move to the sidelines."