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Quarterly Results Roundup: MLPs' Performance in 3Q17

PART:
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Part 12
Quarterly Results Roundup: MLPs' Performance in 3Q17 PART 12 OF 14

DCP Midstream Posts Strong Earnings Growth in 3Q17

Earnings in 3Q17

DCP Midstream (DCP), the midstream MLP jointly owned by Phillips 66 (PSX) and Enbridge (ENB), reported strong earnings numbers in the third quarter. The partnership’s 3Q17 adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 13.1% to $276 million in 3Q17 from $244 million in 3Q16. Moreover, the partnership beat its EBITDA estimate by 13.9%.

DCP Midstream Posts Strong Earnings Growth in 3Q17

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DCP’s strong YoY (year-over-year) EBITDA growth was driven by strong NGL (natural gas liquid) volumes across its Sand Hill NGL pipeline system and strong throughput volumes from the DJ (Denver-Julesburg) Basin. This growth was partially offset by lower production in some regions due to reduced drilling activity. The above chart does not show the impact of the merger between DCP Midstream Partners and its general partner before the first quarter of 2017.

Distribution in 3Q17

DCP Midstream announced a flat distribution of $0.78 per unit in the third quarter. DCP’s distribution coverage improved to 1.1x in the nine months ended September 30, driven by distributable cash flow growth and an IDR (incentive distribution right) giveback from the partnership’s sponsor. DCP’s sponsor had earlier agreed to provide $100 million in annual subsidies through 2019 to maintain the partnership’s distribution coverage above one.

Analysts’ recommendations

Of the analysts covering DCP Midstream, 53.8% had recommended “hold,” 30.8% had recommended “buy,” and the remaining 15.4% had recommended “sell” as of November 8. DCP’s average target price of $36.80 implies a 5.0% potential upside based on its current price.

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