Buckeye Partners’ Distribution Growth Stops in 3Q17
Earnings in 3Q17
Buckeye Partners (BPL), which is involved in crude oil, refined product, and NGL (natural gas liquid) transportation and terminaling, reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $277.3 million in 3Q17, compared with $271.6 million in 3Q16, a YoY (year-over-year) rise of 2.1%. Moreover, BPL beat its EBITDA estimate by 2.3%.
The YoY growth in the partnership’s 3Q17 EBITDA was mainly driven by its acquisition of VTTI and improved performance in Buckeye Texas Partners’ joint venture. This growth was partially offset by the termination of an important long-term contract in its Global Marine Terminals segment, weakened performance in its Pipelines & Terminals segment, and the impact of hurricanes on the partnership’s operation.
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Distribution in 3Q17
BPL declared flat distribution in 3Q17, after 18 consecutive quarters of distribution growth. BPL declared a distribution of $1.26, which represents a 3.1% rise from 3Q16. The pause in BPL’s distribution growth is due to continued decline in the partnership’s distributable cash flow. BPL’s 3Q17 distributable cash flow fell 6.2% to $181.9 million in 3Q17 from $193.9 million in 3Q16. The decline in the partnership’s distributable cash flow despite EBITDA growth is due to higher interest expenses and hurricane-related maintenance capital expenditure.
Despite the flat distribution, BPL’s distribution coverage stayed below one (0.98x) at the end of the third quarter. A distribution coverage below one indicates that a partnership might not be able to cover its distribution from internally generated cash flow. If the condition deteriorates further, then distribution cuts could be the company’s only option to improve its coverage position.
Of the analysts covering Buckeye Partners, 57.1% had recommended “hold” as of November 8, and the remaining 42.9% had recommended “buy.” Peers Kinder Morgan (KMI) and Magellan Midstream Partners (MMP) received “buy” rating from 57.8% and 43.8% of analysts, respectively.
BPL is currently trading below the low range ($61) of analysts’ target price. BPL’s average target price of $67.70 implies a potential upside of ~31.0% based on its current price.