In a report published Wednesday, Credit Suisse Group initiated coverage on Alon USA Partners LPALDW
with a Neutral rating and $24.00 price target. Credit Suisse noted, “We initiate on ALDW, a variable-rate no-IDR MLP, with a Neutral rating. If margins and WTI-Brent spreads meet our forecasts, then unitholders can expect a ~15% yield in 2013 (higher at the futures curve). However, (1) the units themselves look fairly valued on our mid-cycle distribution forecasts and (2) substantial pipe is being added to narrow WTI discounts versus LLS over 2013, a key earnings driver. Given WTI-LLS spreads should compress, unitholders should pay close attention to the midcycle yield, which is 11% on our forecasts. Absolute upside from here would require a higher level of mid-cycle earnings or the market accepting a lower cost of equity (we use 11%). Although a ~19%+ pro-rated NTM yield attracts versus the MLP universe, the total return potential of ~24% is more in-line with its MLP peers, justifying our Neutral rating.” Alon USA Partners LP closed on Monday at $22.85.
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