Wunderlich Analysts Find Value In The Gulf Of Mexico

• The share price of Genesis Energy, L.P. GEL has declined 14.27 percent in the past six months.
• Wunderlich’s Jeff Birnbaum has initiated coverage of Genesis Energy with a Buy rating and price target of $50.
• Birnbaum believes that the stock valuation is attractive at present and that the discount to peers is overdone, given the positive production outlook for the company assets in the Gulf of Mexico.

Analyst Jeff Birnbaum stated that despite the energy downturn, the company has been seeing continued adjusted EBITDA growth, driven by its refining segment.

“Refinery utilization rates and crude runs remain high as crack spreads have remained strong, incentivizing refiners to maximize output. This should continue to benefit Genesis throughput growth, as refiners are the shipper or end-demand user on the majority of GEL's pipeline, marine and logistics assets,” Birnbaum explained.

In addition, Genesis Energy has been able to meaningfully grow its size and scale with the recent acquisition of the offshore business from Enterprise Products Partners EPD. Also, Birnbaum believes that the business fundamentals of Genesis Energy’s customer remain robust and that the company has significant investments slated to come online in 2H15.

On the other hand, the EIA has forecasted that crude production in the Gulf of Mexico by year end 2016 would be meaningfully higher than onshore production. Following the acquisition of Enterprise Products Partners’ offshore assets, Genesis Energy is now among the top few midstream player in the GoM.

In fact, Birnbaum expects the company’s growth to continue, without the need for additional capital in the near term.