Will Top MLPs Generate Positive Returns in 2018?



EPD has the most “buy” recommendations

With all of the top four MLPs in the red so far in 2017, investors are wondering how they will perform in 2018. Let’s take a look at what Wall Street analysts recommend for 2018 for the four MLPs that we are discussing.

Out of Energy Transfer Partners (ETP), Enterprise Products Partners (EPD), Magellan Midstream Partners (MMP), and Williams Partners (WPZ), Enterprise Products Partners got the most buy recommendations from analysts surveyed by Reuters. 92% of analysts rated EPD as a “buy.” In comparison, 78% of analysts rated Williams Partners as a “buy.” 75% rated Energy Transfer Partners as a “buy.” Only 44% of analysts rated Magellan Midstream Partners as a “buy.”

Analysts’ median target price for EPD in a year is $31. Its units are currently trading at $24.33. If it attains its price target, it would imply a price return of 27% in a year.

ETP’s potential upside

The consensus target price for ETP in a year is $25. Based on the target prices, Energy Transfer Partners has a maximum upside potential of 53% from its current price of $16.34.

Williams Partners and Magellan Midstream Partners have a potential upside of 25% and 16%, respectively, in a year. The two MLPs have consensus price targets of $45 and $77, respectively.

What’s in the future for the top MLPs?

The environment for MLPs continues to remain challenging. By slowing down distribution growth through 2018, and aiming for self-funding future growth, Enterprise Products seems to have taken a path similar to Magellan. Both EPD’s and MMP’s stable distribution growth, strong coverage ratios, and reasonable leverage should bode well for their consistent performance going forward.

MMP’s relatively lower “buy” recommendations likely reflect the stock’s significant outperformance compared to peers over the last few years. This likely makes MMP look slightly overvalued relative to peers. Notably, it’s the only MLP that expects higher capital expenditures in 2018 over 2017.

Energy Transfer Partners’ steps to reduce leverage should positively impact the stock’s future performance. ETP’s stock was weak in 2017 both due to hurdles facing its projects as well as overall weakness in the sector. Key expansion projects including Rover Pipeline, Revolution System, and Mariner East 2 are expected to contribute significantly to ETP’s earnings, which contributes to the attractive upside potential for the stock, as discussed above.

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