Genesis Energy (GEL) saw some rating updates and target price cuts following the distribution cut announcement. Barclays raised Genesis Energy from “underweight” (equivalent to “hold”) to “overweight” (equivalent to “sell”). It also cut Genesis Energy’s target price to $27 from $31. Raymond James cut the partnership’s target price to $28 from $33. Barclay’s upgrade might reflect the expected improvement in the partnership’s financial position.
Now, 50% of the analysts surveyed by the Reuters rate Genesis Energy as a “buy,” while the remaining 50% rate it as a “hold.” Genesis Energy’s peers, Plains All American Pipeline (PAA) and NuStar Energy (NS) have “hold” ratings from 51.8% and 66.7% of the analysts, respectively.
Genesis Energy’s updated average target price of $31.6 implies 26% returns from the current price levels. However, the partnership will likely see more target price cuts bring down the upside potential.
Genesis Energy’s outlook
Genesis Energy’s outlook looks bleak in the short term considering the recent distribution cut, slow rate of distribution growth guidance, its high commodity price exposure, and volatility in crude oil prices. Genesis Energy is among the top ten MLPs that have the highest correlation with crude oil. To learn more, read The 10 MLPs Most Correlated with Crude Oil.
However, the improvement in Genesis Energy’s balance sheet and contributions from the recently acquired Alkali Business could help the partnership increase shareholders’ wealth in the future.