Optimism In MLPs: U.S. Elections A Huge Positive

Trump’s victory in the U.S. presidential election has seen a “marked rise” in management optimism across the MLP (Master Limited Partnership) group, Credit Suisse’s John Edwards said in a report. He added that the forecasts had been updated across the Energy Transfer family to reflect the 3Q results as well as “other material events during the quarter.”

Energy Transfer Equity LP

Edwards reiterated an Outperform rating on Energy Transfer Equity LP ETE, with a price target of $20. He added the stock to the Credit Suisse MLP Top Pick List.

Management expressed optimism regarding the future of midstream infrastructure projects, indicating that it expects the project approval bottlenecks to be ironed out, including the Dakota Access Pipeline (DAPL) project, which has been embroiled in controversy. Energy Transfer Equity’s yield of ~11 percent “represents an attractive entry point for long-term investors,” Edwards noted.

Energy Transfer Partners

The analyst reiterated an Outperform rating on Energy Transfer Partners LP ETP, with a price target of $50. He commented that the company was “easily the biggest beneficiary of the election results.”

“With a change of guard at the White House, construction on the final section of the DAPL beneath the Missouri river is finally expected to proceed,” the Credit Suisse report stated. Following receipt of the easement from the U.S. Army Corps of Engineers, the pipeline would be able to access the remaining ~$1.4 billion of the total project financing of $2.5 billion.

Energy Transfer Partners would also be able to complete the sale of 49 percent of its 45 percent stake in the project and receive $1.2 billion in cash. Moreover, construction at the ~$3.8 billion Rover pipeline project is scheduled to commence in end-2016 and Phase 1 could come online in June 2017 and Phase 2 in November 2017.

Sunoco Logistics Partners

Sunoco Logistics Partners L.P. SXL has reported a quarter’s delay in the 275Mbpd Mariner East 2 project, which is now slated to be placed in service in Q3 of 2017.

“With regard to crude oil production in the US, the Permian basin provides the best economics that has prompted producers to deploy over half of the incremental total rigs in the region since rig deployments bottomed. SXL has taken a big leap to capture this growing production,” Edwards wrote.

Sunoco Logistics Partners reported its Q3 results 3 percent short of expectations due to the underperformance of the NGLs segment.

Sunoco

Edwards reiterated a Neutral rating on Sunoco LP SUN, with a price target of $31. He commented that the margin outlook seems better than what is implied by the guidance and management could revise their projections going ahead.

The analyst estimates that Sunoco would need to issue ~$100 million in Q4 to avoid exceeding the 6.25x covenant or may need to seek support from Energy Transfer Equity. He added, “We believe SUN would balance equity issuance during 2017 while holding distributions at the current $0.8255/unit level to rein in ~6x leverage (3Q16) to less than 5x by 2018. SUN’s expected material reduction in growth capital spending is a positive step in this direction.”