Keep An Eye On These Two Energy Stocks Credit Suisse Just Upgraded

In separate reports published Monday, Credit Suisse analyst John Edwards upgraded the ratings on two Energy stocks citing valuation as the reason. Analyst John Edwards upgraded the rating on
Oneok Partners LPOKS
from Neutral to Outperform, while raising the price target from $45 to $48, saying that the units appeared "too cheap." Oneok reported EBITDA of $387mm, ahead of the Street expectation of $372mm and the Credit Suisse estimate of $374mm. The company's total DCF came in at $277mm, higher than the CS estimate of $264mm. "Segment margins beat overall with Natural Gas Liquids ahead of our estimate by 8% on strong NGL sales and total fee-based volumes, which was partially offset by Gathering and Processing which came in 5% below our estimate on margins as volumes actually beat our forecast by 5%," Edwards said. Oneok reiterated its 2015 EBITDA and DCF guidance, and Edwards believes that "the worst is over for OKS." Management guided to continued volume growth into 2016, led mainly by the Williston. The EBITDA and DCF estimates for 2015 have been raised by 3 percent to $1,606mm and by 4 percent to $1,153mm, although short of the guidance midpoints of $1,620mm EBITDA and $1,170mm DCF. "We expect coverage to stabilize around 1.05x for the remainder of the year and distribution growth to resume in 2Q16," the Credit Suisse report added. Edwards upgraded the rating on
Magellan Midstream Partners, L.P.MMP
from Neutral to Outperform, while reducing the price target from $93 to $89. Magellan reported its 1Q15 EBITDA and DCF at $282mm and $223mm, beating the Credit Suisse estimates of $243mm and $195 estimates, respectively. "Segment margins beat by a solid 4% with Crude Oil coming in at $107mm vs. our $74mm estimate partially offset by Refined Products which reported $148mm vs. our $171mm estimate, Marine Storage was in line with a $30mm segment operating margin," Edwards wrote. Management raised its 2015 DCF guidance by $10mm to $880mm and reiterated its distribution growth of 15 percent in 2015 and at least 10 percent in 2016. The price target has been reduced to reflect "slightly more conservative distribution growth assumptions," with Magellan's opportunity set shifting from long haul crude pipes to marine infrastructure. The Credit Suisse report added, however, that a total return potential upside of more than 45 percent was the reason for the upgrade in rating.

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