What Led to Western Gas Partners’ Lower Earnings in 3Q17



Earnings in 3Q17

Midstream MLP Western Gas Partners (WES), which is mainly involved in natural gas gathering and processing, posted a 7.3% YoY (year-over-year) fall in its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in 3Q17. Moreover, the partnership missed its EBITDA estimate by 0.7%.

The YoY decline in the MLP’s 3Q17 EBITDA was mainly due to lower natural gas throughput volumes. The partnership’s natural gas throughput volumes averaged 3.4 Bcfpd (billion cubic feet per day) during the third quarter, which represents a 16% YoY fall from 3Q16.

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The lower EBITDA led to a fall in the partnership’s distributable cash flow during the third quarter. Western Gas Partners’ distributable cash flow fell 2.3% to $231.8 million in 3Q17 from $237.3 million in 3Q16, which lowered the partnership’s distribution coverage ratio. For details on its third-quarter distribution, read Western Gas Partners Announced 1.7% Distribution Increase.

Analysts’ recommendations

Stifel Nicolaus has upgraded Western Gas Partners to “buy” from “hold.” Overall, Western Gas Partners has seen four rating updates in 2017—one upgrade, one downgrade, and two initiations of coverage with “buy” ratings. Of the analysts covering Western Gas Partners, 64.7% recommend “buy,” and the remaining 35.3% recommend “hold.” Peers EnLink Midstream Partners (ENLK) and Crestwood Equity Partners (CEQP) have received “hold” ratings from 56.3% and 55.6% of analysts, respectively.

The partnership is currently trading significantly below the low range ($56) of analysts’ target price. Western Gas Partners’ average target price of $62.90 implies a potential upside of 36% based on its current price.


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