UPDATE: Morgan Stanley Upgrades Spectra Energy Partners to Equal-Weight, Raises PT Following Valuation Uplift

In a report published Wednesday, Morgan Stanley analyst Stephen J. Maresca upgraded the rating on Spectra Energy Partners SEP from Underweight to Equal-Weight, and raised the price target from $37.00 to $42.00. In the report, Morgan Stanley noted, “Underweight rating no longer warranted given valuation uplift from drop downs. Our thesis had been that investors are paying a premium (5.4% yield and 17.0x 2013E P/DCF vs. MS averages of 5.9% and 15.2x, respectively) for a stable asset base, quality balance sheet, and large parent (SE), but getting subpar distribution growth (~4% distribution growth) and limited visibility with waning cash coverage. While the possibility for dropdowns (from SE) has loomed, the execution has been underwhelming (fewer dropdowns and expensive multiples).” Spectra Energy Partners closed on Tuesday at $37.19.