Hi-Crush Partners

Hi-Crush Partners (HCLP), the fracking sand producer, had an impressive start to the new year. It has risen ~13% in first three trading sessions of 2018. HCLP’s recent strong performance could be attributed to strong crude oil prices and the corresponding increase in US drilling activity. According to Baker Hughes, the rig count in the Permian Basin increased to 400 at the end of last week compared to 385 at the end of the third quarter.

Despite the recent gains, HCLP has fallen 36.2% over the past year. That could make the fracking sand producer a promising MLP for 2018. HCLP is expected to benefit from low leverage and strong earnings growth.

Strong Expected Earnings Could Make Hi-Crush Promising for 2018

Valuations

HCLP was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 4.6x as of January 5, 2018, which is significantly below the five-year average of 16.0x. Its distribution yield of 5.3% is higher than the historical average of 4.7%.

Leverage

Hi-Crush Partners has a strong financial position. The partnership ended the third quarter of 2017 with a net debt-to-EBITDA of 2.4x, which is well within the industry standards.

Earnings growth

Strong US drilling activity and organic projects are expected to drive HCLP’s volume growth in 2018 and the following years. That, in turn, is expected to drive the partnership’s earnings growth. Wall Street analysts expect EBITDA CAGR (compound annual growth rate) of 20.9% from HCLP during the 2018–2020 period. That’s expected to translate into strong distribution CAGR of 67.6%. However, crude oil volatility could be a bottleneck for HCLP in achieving these estimates.

Analyst recommendations

About 85.7% of analysts rate HCLP a “buy” as of January 5, 2018, while the remaining 14.3% rate it a “hold.” Barclays last initiated coverage on HCLP in December 2017 with an “equal weight” rating, which is equivalent to a “hold.” HCLP’s average target price of $14.90 implies a ~17% upside potential from the current price levels.

In the next part, we’ll look at the fundamentals of TransMontaigne Partners (TLP).

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