Barclays Reinstates Coverage Of Crestwood Equity At Underweight

Barclays analysts Heejung Ryoo and Richard Gross have reinstated coverage of Crestwood Equity Partners LP CEQP with an Underweight rating and a price objective of $22.00. The analysts expect improvements in financials due to JV deal and 56 percent cut in distribution. The brokerage believes its long-term prospects depend on its coming back activities.

The analysts noted that Crestwood Equity Partners completed the formation of a new JV (Stagecoach JV) with Con Ed on its gas pipeline and storage assets in southern NY and PA. The brokerage pointed out that CEQP received $945 million with another $30 million expected pending NYS regulatory approval and satisfaction of other closing conditions.

"The total consideration implies 13x multiple on CEQP's assets. As a result of the announcements that came on 4/21, CEQP has significantly improved its balance sheet and coverage. Its Q1 pro forma leverage went to 3.8x vs 5.0x and its 0.96x coverage to 1.9x. CEQP's 2016 guidance states 3.9x leverage and 1.7x coverage or 1.4x with class A units cash payment which starts mid 2017," the analysts expressed their opinion in a research note to clients.

The brokerage said that while CEQP now compares favorably to its peers on key financial metrics, its opinion is that a revival of drilling activity is needed, particularly around its asset base like Bakken, Barnett, Fayetteville, Marcellus, and Niobrara, to keep its key metrics stable. "Our view is that it would be challenging to grow distribution and coverage can reach 1.0x in 2018 without drilling coming back," the analysts added.

On Tuesday, the stock traded 1.24 percent down.