Earnings in 3Q17
Shell Midstream Partners (SHLX), Royal Dutch Shell’s (RDS-A) midstream MLP subsidiary, posted strong earnings numbers during the third quarter. SHLX’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 30.0% to $92.0 million in 3Q17 from $70.9 million in 3Q16. Moreover, SHLX beat its 3Q17 EBITDA estimate by 12.0%. The partnership benefited from strong crude oil and refined product throughput volumes, partially offset by the impact of hurricanes on the partnership’s operations.
The strong EBITDA growth drove the partnership’s distributable cash flow and distribution coverage higher. SHLX’s coverage ratio stood at 1.1x at the end of the third quarter.
Distribution in 3Q17
SHLX declared a distribution of $0.32 per unit in 3Q17, which represents a 4.6% rise from 2Q17 and a 21.0% rise from 3Q16, and marked its 11th consecutive quarter of distribution growth. The partnership expects to grow its distribution by 20% in 2017 and 2018. Based on its recent distribution, SHLX is currently trading at a distribution yield of 4.7%.
Of the analysts covering SHLX, 66.7% had recommended “buy” and the remaining 33.3% had recommended “hold” as of November 8. The partnership has seen only one rating update in 2017. Peers Andeavor Logistics (ANDX) and PBF Logistics (PBFX) have received “buy” ratings from 78.6% and 80.0% of analysts, respectively.
SHLX is currently trading below the low range ($29) of analysts’ target price. SHLX’s average target price of $34.30 implies a 26% potential upside based on its current price.