UPDATE: Morgan Stanley Downgrades Regency Energy Partners LP as Digestion of PVR Hampers Near-Term Outlook

In a report published Wednesday, Morgan Stanley analyst Stephen J. Maresca downgraded the rating on

from Equal-Weight to Underweight, and lowered the price target from $29.00 to $28.00. In the report, Morgan Stanley noted, “Maintaining distribution growth in-line with the broader MLP group could prove difficult for RGP through 2014. Despite asset positioning in several promising plays (Permian, Eagle Ford, Haynesville, Granite Wash, Marcellus), expensive recent acquisitions (SUGS, PVR) will likely necessitate significant further organic investment to generate attractive all-in returns and fully realize opportunities around these footprints. RGP has taken great strides to reconfigure itself as a stable and broadly diversified MLP and benefits from a general partner committed to a proactive approach to sourcing growth (i.e., new acquisitions / projects). However, we are concerned with RGP's ability to accelerate distribution growth (over the next 4-5 quarters) given the modest dilution in 2014 from the PVR purchase. We are modestly lowering our price target to $28 (from $29) – 14% one-year total return potential – to account for execution risk around the recent PVR transaction. With MSe overall median MLP distribution growth of 10.9% in 2014e and 9.3% in 2015e (compared to 4.3% and 4.1% at RGP), we believe the current discounted valuation (7.1% yield/12.8x 2014e P/DCF relative to MS medians of 5.7%/15.4x) is warranted and performance could become challenging.” Regency Energy Partners LP closed on Tuesday at $26.24.