Wunderlich Securities downgraded BreitBurn Energy Partners L.P. BBEP Friday from Buy to Hold and cut it price target from $20 to $9 over risks to its distributions amid flagging oil prices.
Analyst Abhishek Sinha felt that “although the company has strong hedges...it would still have coverage well below 1.0x in this oil price environment. BBEP has $300mm of liquidity available, which could help cover distributions shortfall; however, the company is already levered high with debt/ntm EBITDA of 4.3x vs the peer average of 3.5x.”
Sinha though that much of the company’s “financial trouble would get resolved if it is able to find a JV partner or a financial sponsor...However, finding the right partner in this environment would be an uphill task.”
The price target dropped “from $20 to $9 primarily due to multiple compression of the upstream MLP sector, a lower oil price environment, and assuming a 20 percent cut in distributions. Based on the current valuation of the stock, we believe it is fairly valued as the market is already factoring in a possibility of a distribution cut,” according to Sinha.
The company’s shares have fallen approximately 60 percent over the past three months.
BreitBurn Energy Partners traded in the premarket at $8.58, down 2.4 percent.
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