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Ratings Update for MLPs after 1Q17 Earnings

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Ratings Update for MLPs after 1Q17 Earnings PART 1 OF 9

Energy Transfer Partners Gets 2 Upgrades after Merger, 1Q Results

Ratings update

Energy Transfer Partners (ETP), the midstream MLP subsidiary of Energy Transfer Equity (ETE), was upgraded by two research firms on Tuesday, May 9, 2017. Stifel upgraded ETP from a “hold” to a “buy,” while Credit Suisse upgraded it from “neutral” to “outperform,” which is equivalent to a “buy.”

Following these upgrades, ETP currently has “buy” ratings from 81.0% of analysts surveyed by Reuters. The remaining 19.0% have rated it a “hold.”

Energy Transfer Partners Gets 2 Upgrades after Merger, 1Q Results

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Energy Transfer Partners recently completed its merger with Sunoco Logistics Partners. The combined entity is called Energy Transfer Partners with the ETP ticker. Energy Transfer Equity continues to hold the limited partner interest, the general partner interest, and the IDRs (incentive distribution rights) in the combined entity.

ETP stock performance

Energy Transfer Partners rallied 3.5% following the rating upgrade. In comparison, its peers Kinder Morgan (KMI) and Enbridge (ENB) rose 1.5% and 0.20%, respectively. The Alerian MLP ETF (AMLP) rose 1.2%.

ETP is currently trading at an analyst estimated forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 5.2x, which is lower than the peer median multiple of 11.4x. ETP’s average target price of $30.70 implies a 31.8% price return from its May 10, 2017, closing price of $23.30.

ETP’s outlook

Energy Transfer Partners’ long-term outlook looks positive considering the following:

  • strong project backlog
  • expected improvement in leverage situation following its merger with Sunoco Logistics Partners
  • strong presence in prolific shale plays
  • integration opportunities

The partnership recently announced the start of two major natural gas pipeline projects to Mexico—the Trans-Pecos Pipeline and the Comanche Trail Pipeline. However, ETP’s high commodity price exposure and declining natural gas throughput volumes in some regions remain a concern.

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