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Midcoast Energy Partners Not in Great Favor with Analysts

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Year-to-date returns

Midcoast Energy Partners (MEP) has generated total returns, including dividends, of 8.5% so far in 2016. In comparison, its peers ONEOK (OKE), Williams Companies (WMB), Tallgrass Energy Partners (TEP), and Western Gas Partners (WES) have generated total returns of 103%, 26%, 20%, and 10%, respectively, during the same timeframe. The Alerian MLP ETF (AMLP) has generated 10% returns so far in 2016.

Interestingly, Midcoast Energy Partners has surged 26% since the start of September. The above graph compares MEP’s total returns with those of Williams Companies (WMB), Tallgrass Energy Partners (TEP), Western Gas Partners (WES), and the Alerian MLP ETF (AMLP).

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Analyst recommendations

Analysts’ median target price for Midcoast Energy Partners (MEP) for the next year is $8.00. The median target price implies a -8% price return over the next year from MEP’s current price of $8.70. All of the analysts surveyed have rated MEP a “hold.”

As for MEP’s peers, 76% analysts rated OKE a “hold,” 60% rated WMB a “buy,” 59% rated WES a “buy,” and 53% of analysts rated TEP a “buy.”

An uncertain future

Uncertainty related to Midcoast Energy Partners’s future is reflected in analysts’ recommendations for the stock. The completion of Enbridge Energy Partners’s (EEP) strategic evaluation, which we discussed in the previous part, should provide more clarity on MEP’s future.

“The strategic evaluation is ongoing,” noted C. Gregory Harper, president of the partnership, in the 2Q16 earnings release. “We are working with a long-term perspective to maximize the value of the business and expect to complete the evaluation by the end of this year.”

MEP’s declining volumes and margins continue to be a matter of concern for investors. We’ll discuss this next.

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