Goldman Downgrades CQP, SMLP, WGP To Neutral, NGL To Sell

Goldman Sachs’ Theodore Durbin maintained a Neutral coverage view on the Midstream/MLP sector, while saying that there were sufficient near- to medium-term fundamental and financial risks that are likely to keep stocks range-bound, despite their attractive relative valuation.

“Our stock picking approach continues to reflect a defensive stance given continued challenges from declining volumes and lower commodity prices,” analyst Theodore Durbin wrote.

Cheniere Energy Partners

Durbin downgraded the rating for Cheniere Energy Partners LP CQP from Buy to Neutral, while maintaining the price target at $30. Shares are down 19 percent since mid-May 2015, versus a 42 percent decline in the AMZ and a 6 percent decline in the S&P.

While Cheniere Energy Partners offers a total return opportunity of 18 percent, this is less attractive than that offered by other Cheniere entities, like Cheniere Energy, Inc. LNG and Cheniere Energy Partners LP Holdings LLC CQH, which offer a total return opportunity of 30 percent and 28 percent, respectively, the analyst said.

NGL Energy Partners

Goldman Sachs downgraded NGL Energy Partners LP NGL from Neutral to Sell, while slashing the price target from $12 to $6. The report noted, “We see material risk to NGL’s distributions given weak historical and projected cash flow conversion, high GAAP leverage of 7.2x (vs. 4.4x peer avg.), and poor (~0.6x) current coverage.”

The Grand Mesa pipeline, which represents NGL Energy Partners’ largest growth project, is located in the oversupplied Niobrara basin and may have exposure to several sub-IG producers, with two of the largest IG-rated producers in the region being committed to a competitor.

Durbin expects volume pressure and limited organic growth opportunities to adversely impact the company’s ability to conserve liquidity and maintain distributions.

Summit Midstream Partners

Durbin downgraded the rating for Summit Midstream Partners LP SMLP from Buy to Neutral, while reducing the price target from $19 to $16.

Since mid-April 2014, Summit Midstream Partners’ shares are down 65 percent, versus a 47 percent decline in the AMZ -and a 6 percent gain in the S&P. The company has recently acquired all of the residual assets from Summit Investments available for dropdown. “The remaining dropdown assets were less developed than our previous expectations,” the analyst mentioned. He expects flat distributions in 2016 and modest 2 percent growth in 2017 and beyond.

Western Gas Equity Partners

Goldman Sachs downgraded Western Gas Equity Partners LP WGP from Buy to Neutral, while maintaining the price target at $34.

Western Gas Equity Partners’ shares are down 22 percent since December 2013, versus a 41 percent decline in the AMZ and a 10 percent gain in the S&P. Although the company has attractive growth, despite a tough macro environment, the downgrade reflects its relative valuation. Based on valuation, Durbin prefers Western Gas Equity Partners LP WGP.