The Factors Driving Genesis Energy’s Weak YTD Performance



Genesis Energy’s market performance

A midstream MLP mainly involved in crude oil and refined products transportation and logistics, Genesis Energy (GEL) saw a new 52-week low of $28.60 due to the recent weakness in crude oil prices. GEL has lost 8.5% since the beginning of June, and it has dropped 20.7% in 2017.

GEL’s weak year-to-date performance could also be attributed to its crude oil price exposure by its Supply and Logistics segment, high leverage, and lower utilization by its Marine Transportation business. 

Another key factor is the low chance of recovery in deepwater drilling activity as crude oil prices experience a downtrend.

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Genesis Energy’s commodity price exposure

Genesis Energy has exposure to crude oil and refined products through its Supply and Logistics business involving the sale, purchase, and storage of crude oil and refined products. The segment’s performance has also been impacted by a decline in crude oil differentials between different trading points. 

According to Genesis Energy’s 1Q17 earnings press release, “We have found it difficult to compete with certain participants in the market who are willing to lose money on local gathering because they are attempting to minimize their losses from minimum volume or take-or-pay commitments they previously made in anticipation of new production that has not yet and is unlikely to come online.”

Genesis Energy’s valuation

Genesis Energy was trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 11.5x on June 20, 2017. This reading is below the historical five-year average of 14.9x. GEL’s low valuation could indicate its weak earnings and high leverage.

Genesis Energy’s analyst recommendation

Of the analysts that cover Genesis Energy, 57.1% rated it as a “buy” on June 20, and the remaining 42.9% rated it as a “hold.” GEL’s average target price of $37.00 implies a 31.2% return from its current price of $28.20. 

In May 2017, GEL was upgraded by Credit Suisse from “neutral” to “outperform,” which is equivalent to a “buy.”


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