Wunderlich has upgraded NGL Energy Partners LP (NYSE: NGL) to Buy from Hold, on a potentially sizable distribution step-up in FY18 and reasonable valuation.
"NGL's Refined Products business should continue to outperform given increasing motor fuels demand and relatively low prices, while a reversion to the mean of winter weather should benefit Retail Propane," analyst Jeff Birnbaum wrote in a note.
The analyst noted that excess cash flow and acceptable leverage should offset headwinds in water volumes and crude marketing. In addition, "stabilization in WTI prices should provide a basis to collect on Grand Mesa volumes and cash flows," added Birnbaum.
Birnbaum, who expects greater than $150 million in excess cash flow/year, further sees potential upside from Oaktree's partnership with NGL. Furthermore, GP currency could be a valuable tool in attracting additional Oaktree involvement.
The analyst also raised the price target to $20 from $13.
"Our $20 price target equates to ~10.5x FY17E LP EBITDA, or a 9.4 percent yield on forecast average FY17/FY18 distributions/unit of $1.56/$2.18, and would generate a 15 percent total return on the FY17E distribution," Birnbaum added.
At the time of writing, shares of NGL were up 1.98 percent at $19.05.
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