Janney Analyst Raises Genesis Energy's Fair Value Estimate, Cites Increased Execution Confidence
Janney analyst Akil Marsh raised the fair value of Genesis Energy, L.P. (NYSE: GEL) unit to $44 from $32 on higher execution confidence. The brokerage kept a rating of Buy on the shares of the company.
The analyst stated Janney has "increased confidence" that Genesis Energy "will execute on its de-risked growth cap ex plan." Furthermore, the analyst believes a lower implied cost of capital exists "as GEL's equity risk premium has continued to contract following the rally in its underlying debt."
Marsh elaborated, "With above peer EBITDA growth, 10 percent per annum distribution growth through at least 2018, and a +6 percent yield we find the units compelling. Our Fair Value Estimate of $44 is based on a 12.5x multiple on our 2017 EBITDA estimate, which is a 10 percent discount to GEL's historic multiple."
Janney sees growth capex as driving +15 percent annual EBITDA growth in the next three years. According to the analyst, Genesis Energy is at the tail end of a $900 million capex program, with $270 million slated to be spent this year. The analyst believes that majority of the growth capex spend for 2016 "is tied to midstream projects related to investment-grade rated Exxon Mobil Corporation (NYSE: XOM)'s refinery assets."
The brokerage pointed out another notable growth capex project, the midstream assets in the Powder River Basin, which is supported by an acreage dedication from investment-grade rated Devon Energy Corp (NYSE: DVN).
The analyst concluded, "Because of the robust EBITDA growth, we expect the distribution to be well covered between now and 2018 (+1.2x coverage ratio) while growing 10 percent annually."
At time of writing, Genesis was slightly down at $37.56, shortly before Thursday's opening bell.
Latest Ratings for GEL
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