The acquisition achieves management's guidance of $500 million–$750 million in dropdowns for 2016, and Morgan Stanley said the Parkway Pipeline should be a candidate for dropdown to VLP in the future.
Further, the brokerage said Valero remains well on track for management's 25 percent annual distribution growth target for 2016 and 2017, given the company's 2.0x distribution coverage.
"We continue to view VLP as an attractive growth story with significant financial flexibility. With 2.7x debt/EBITDA (2Q16) and 2.04x distribution coverage, VLP is well-positioned to opportunistically execute on its dropdown growth backlog through 2020," analyst Tom Abrams wrote in a note.
At time of writing, Valero was up 1.71 percent on Tuesday at $42.35. Abrams has a price target of $58.
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