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2 Small-Cap Energy Stocks SunTrust Now Likes

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In separate reports published Monday, SunTrust Robinson Humphrey analyst Tristan Richardson initiated coverage of two small-cap energy stocks - Penntex Midstream Partners LP (NASDAQ: PTXP) and Arc Logistics Partners LP (NYSE: ARCX) – with a Buy rating.

  • Penntex Midstream Partners

“PTXP is a newly public G&P focused on the Terryville Complex in north Louisiana serving primary customer Memorial Resource Development (MRD),” analyst Tristan Richardson said. Despite the current environment, MRD's attractive well economics and robust balance sheet are expected to help the company average 8 rigs on its acreage and to complete 40-45 wells this year. This should lead to “growth on PTXP’s system.”

In the report SunTrust noted, “Given PTXP’s relationship with MRD (both backed by NGP), the partnership has secured very attractive MVCs that equate to 100% of capacity as new plants are completed. Combined with the fee-based structure of the long term (15 year) agreement, PTXP has mitigated volumetric risk (particularly with that of the new plant) and has locked in high levels of utilization offering step function growth as plants come online.”

Richardson expects Penntex to achieve around 20 percent distribution growth in the near term and substantial cash flow growth in 2016 and into 2017. The price target for Penntex is estimated at $24.

  • Arc Logistics Partners

“Arc Logistics is a small but diversified owner/operator of crude and refined product terminal assets across the US,” Richardson mentioned.

While several midstream firms have pulled back or slowed capital projects, given the current environment, Arc Logistics is positioned as a “geographically diversified, commodity diversified terminal operator” and seems well positioned as it is serving downstream customers.

“The current portfolio of storage assets are tied to long term fee-based agreements with ~70+% of the contract portfolio on take or pay arrangements. The partnership remains insulated from producer downturn and significantly protected from volumetric risk,” the SunTrust report said.

While Arc Logistics is likely to pursue growth with some organic projects at its existing facility, the main source for growth would depend on its ability to complete M&A transactions and further expand its footprint.

Richardson expects the company to generate high single-digit growth over the next several years, in view of its successful acquisition strategy. The price target for Arc Logistics is estimated at $26.

Latest Ratings for PTXP

DateFirmActionFromTo
May 2017CitigroupDowngradesBuyNeutral
May 2017BairdDowngradesOutperformNeutral
May 2017RBC CapitalDowngradesOutperformSector Perform

View More Analyst Ratings for PTXP
View the Latest Analyst Ratings

Posted-In: SunTrust Robinson HumphreyAnalyst Color Small Cap Analysis Initiation Analyst Ratings Trading Ideas

 

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