Jefferies Cuts DCP Midstream To Hold, Doesn't See Dividend Being Covered Through Year

DCP Midstream Partners, LP DPM shares have appreciated 53 percent year-to-date, rising 140 percent from their February lows.

Jefferies’ Christopher Sighinolfi downgraded the rating on the company from Buy to Hold, while raising the price target from $32 to $35.

1Q Performance

DCP Midstream reported realized adjusted EBITDA of $173 million for 1Q, in line with the estimate, but above the consensus.

The DCF for the quarter was also above the estimate at $165 million, driven by lower-than-anticipated maintenance capex, higher-than-expected unconsolidated affiliate distributions and MVC receipts worth $2 million.

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Asset Sale

“In May, DPM agreed to sell assets to a 3rd party for ~$160mm with deal close anticipated this quarter; mgmt expects to record a gain on this transaction of ~$35mm, which we suspect may result in another discrepancy between how the JV sponsors,” Sighinolfi said.

The analyst also noted that the company had reduced its headcount by 10 percent in April, through its ongoing initiatives to reduce costs and create efficiencies.

Sighilioni expects the company to not be able to cover its dividend over the rest of 2016.