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 (NYSE: AM)
EnLink Midstream LLC (NYSE: ENLC)
Enbridge Energy Partners, L.P. (NYSE: EEP)
Enterprise Products Partners L.P. (NYSE: EPD)
Kinder Morgan Inc (NYSE: KMI)
Spectra Energy Partners, LP (NYSE: SEP)
VTTI Energy Partners LP (NYSE: VTTI)
Western Gas Equity Partners LP (NYSE: WGP)
Western Gas Partners, LP (NYSE: WES)

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

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

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