Market Overview

Sell-Side Reacts To EnLink Midstream's Proposed MLP Buyout

Share:
Sell-Side Reacts To EnLink Midstream's Proposed MLP Buyout
Related ENLC
Earnings Scheduled For November 6, 2018
Earnings Scheduled For May 1, 2018
EnLink Midstream, LLC (ENLC) CEO Mike Garberding on Q3 2018 Results - Earnings Call Transcript (Seeking Alpha)
Related
Earnings Scheduled For November 6, 2018
Benzinga's Top Upgrades, Downgrades For October 23, 2018
Muted Midstream Relief (Seeking Alpha)

EnLink Midstream LLC (NYSE: ENLC) announced Monday ahead of the market open an agreement for buying all outstanding common units of EnLink Midstream Partners LP (NYSE: ENLK) in a bid to simplify its corporate structure.

The Analysts

The sell-side was broadly optimistic on the announcement. 

Baird analyst Ethan Bellamy has Neutral ratings on both EnLink Midstream and EnLink Midstream Partners, with a price target of $18 for both.

Credit Suisse analyst Spiro Dounis upgraded EnLink Midstream Partners from Underperform to Neutral and raised the price target from $17 to $18.

Raymond James analyst J.R. Weston reiterated an Outperform rating with a $19 price target on EnLink Midstream while downgrading EnLink Midstream Partners from Outperform to Neutral. 

Baird: Merger Incrementally Positive For Both Companies

The acquisition addresses the major structural overhang on both companies, Baird's Bellamy said in a Monday note.

"Moreover, this transaction materially advances our positive bias to ENLK/ENLC, which continues to gain from positive volumetric trends," the analyst said. 

Bellamy said he sees the lower cost of capital available to the simplified EnLink as increasing the spread on project returns.

The deal suggests positive dynamism under parent Global Infrastructure Partners, which in June acquired Devon Energy Corp (NYSE: DVN)'s 64-percent stake in EnLink Midstream and 23-percent stake in EnLink Midstream Partners, according to Baird. 

Credit Suisse: New Company, Wider Investor Base

The takeout premium of 1.1 percent was largely in-line with Credit Suisse's expectation for no premium, although the timing was earlier than expected, analyst Dounis said in a Tuesday note.

The analyst also said the distribution cut was an anticipated risk, given the yield parity between the two companies.

Distribution growth of 5 percent or more was largely unchanged from the guidance, while coverage should increase to 1.3-1.5 times over the next four years, he said. 

The analyst expects the new company to attract a wider investor base due to the IDR removal, 1099 tax status and simplified structure.

Credit Suisse attributed the negative stock reaction to the trimming of EBITDA guidance from a 5-10-percent increase over the midpoint of 2018 EBITDA to 5 percent; the potential tax implications and effective distribution cut to EnLink Midstream Partners; and the event not being credit-enhancing.

"We view the event as the lifting of an overhang which partially drives our upgrade to Neutral." 

Raymond James Remains Positive On EnLink Midstream

The small premium in the acquisition price may have been due to the fact that EnLink Midstream Partners shares have outperformed EnLink Midstream year-to-date, Raymond James analyst Weston said in a Tuesday note.

The analyst said he remains positive on EnLink Midstream based on the pro forma entity's relatively strong financial metrics.

"The transaction is expected to result in $700 million-plus in cumulative retained cash flow from 2019-2021, making EnLink less reliant on outside funding and enhancing the pro forma balance sheet." 

Raymond James raised its Q3 estimates for EnLink Midstream Partners but lowered its 2020 estimates.

Given its confidence in the deal's completion, the sell-side firm shifted its valuation framework for EnLink Midstream to 2020 estimates.

With EnLink Midstream Partners shares trading near the implied deal value, Raymond James downgraded the stock to Neutral. 

The Price Action

EnLink Midstream shares were down 4.89 percent at $14.98 at the time of publication Tuesday, while EnLink Midstream Partners shares were down 3.21 percent at $17.51. 

Related Links:

Terms Of The Trade: Master Limited Partnerships

This Week In The Oil Market: Iran Loses Customers, US-Saudi Tensions Rise

Latest Ratings for ENLC

DateFirmActionFromTo
Nov 2018RBC CapitalMaintainsOutperformOutperform
Oct 2018Credit SuisseInitiates Coverage OnNeutral
Aug 2018BarclaysMaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for ENLC
View the Latest Analyst Ratings

Posted-In: Baird Credit SuisseAnalyst Color Upgrades Downgrades Price Target Reiteration Analyst Ratings Best of Benzinga

 

Related Articles (DVN + ENLC)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
ALRMImperial CapitalUpgrades58.0
ANDXSunTrust Robinson HumphreyDowngrades41.0
CMANomuraDowngrades86.0
CSLLongbow ResearchUpgrades122.0
HBANNomuraDowngrades15.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

How To Use Pivot Points In Your Trading

2 Cannabis Stocks Becoming Popular Short-Seller Targets