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These MLPs Have the Highest Earnings Margins

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Part 11
These MLPs Have the Highest Earnings Margins PART 11 OF 11

Why VLP Ranks 10th Place among Top MLPs Today

VLP’s TTM EBITDA margin

Valero Energy Partners (VLP), the midstream MLP (master limited partnership) owned by one of US largest refiners, Valero Energy (VLO), ranks tenth place in terms of EBITDA (earnings before interest, tax, depreciation, and amortization) margin among top MLPs today.

VLP is mainly involved in crude oil and refined products transportation and terminaling. It posted a TTM (trailing-12-month) EBITDA margin of 72.9% for 3Q17. VLP’s strong EBITDA margins have been driven by its involvement in the high-margin crude oil and refined products transportation and terminaling business.

Why VLP Ranks 10th Place among Top MLPs Today

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By comparison, peers PBF Logistics (PBFX) and Holly Energy Partners (HEP) have EBITDA margins of 67.7% and 64.1%, respectively.

VLP’s strong EBITDA margins and low leverage have resulted in a high net income margin and high distributable cash flows. The partnership reported a net income margin of 52.7% for 3Q17 and distribution growth of 24.7% YoY.

Trend in recent quarters

VLP’s EBITDA margin rose to 72.2% in 3Q17, compared with 69.4% in 3Q16, which represents a YoY (year-over-year) margin expansion of 287 basis points. The YoY increase the partnership’s EBITDA margin was due to higher revenue growth as compared with its increase in operating cost. The partnership benefitted from lower general and administrative expenses in 3Q17 as well.

Analyst recommendations

Notably, 78.6% of the analysts tracking VLP recommend a “buy” as of December 5, 2017, while 21.4% recommend a “hold.” VLP is currently trading below the low range ($46.5) of the analysts’ target price. VLP’s average target price of $50.9 implies a ~25% upside potential from its current price level.

For more coverage on MLPs, check out Market Realist’s Master Limited Partnerships page.

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