MLPs Are Surprisingly Expensive Compared To Utilities, Cheap Versus E&Ps

In a new report, Credit Suisse analyst John Edwards issues a series of downgrades (and one upgrade) to a number of MLPs following the big rally in the space in recent weeks. According to Edwards, the severity of the oil downturn has called into question the entire MLP model.
 

“The accepted wisdom before the downturn was that the models were robust enough to withstand industry cycles and that pipeline and processing plant cash flows had a degree of insulation from the industry cycle due to the long-dated nature of fee based contracts,” Edwards explains. “But, the prolonged down turn has challenged the robustness assumption on account of counterparty risks and contract renegotiation risks.”

Related Link: Why Is The April 17 OPEC/Non-OPEC Producer Meeting Such A Big Deal?

Credit Suisse believes that the 30 percent rally in most MLPs has changed the risk/reward balance associated with MLPs. The firm has downgraded the following names from Outperform to Neutral:
Antero Midstream Partners LP AM
EnLink Midstream LLC ENLC
Enbridge Energy Partners, L.P. EEP
Enterprise Products Partners L.P. EPD
Kinder Morgan Inc KMI
Spectra Energy Partners, LP SEP
VTTI Energy Partners LP VTTI
Western Gas Equity Partners LP WGP
Western Gas Partners, LP WES

In addition, the following MLPs were downgraded from Neutral to Underperform:
Columbia Pipeline Group Inc CPGX
Magellan Midstream Partners, L.P. MMP
Oneok Partners LP OKS
 

Credit Suisse’s lone upgrade was to move Enable Midstream Partners LP ENBL from Neutral to Outperform.

Disclosure: the author holds no position in the stocks mentioned.