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What’s behind Phillips 66 Partners’ 58% Earnings Growth in 4Q17?

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EBITDA rose 58%

Phillips 66 Partners (PSXP) reported its 4Q17 results on February 2, 2018. The company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 58% to $254 million from $161 million in 4Q16. The 4Q17 EBITDA is 49% higher compared to 3Q17. The increase was primarily due to the acquisition of Merey Sweeny coke processing units and a 25% interest in the Bakken Pipeline. Increased volumes on other assets also contributed to the rise.

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The above graph shows the quarterly EBITDA and per unit distributions of Phillips 66 Partners over the last six quarters. Phillips 66 Partners acquired Merey Sweeny coke processing units and a 25% interest in the Bakken Pipeline in October 2017 for $2.4 billion. These assets are expected to add about $270 million to PSXP’s 2018 EBITDA. This was PSXP’s largest acquisition ever. The Bakken Pipeline system is jointly owned by Energy Transfer Partners (ETP), Phillips 66 Partners, Enbridge Energy Partners (EEP), and Marathon Petroleum (MPC).

Phillips 66 Partners expects to achieve its $1.1 billion EBITDA goal by the end of 2018. For the full-year 2017, Phillips 66 Partners’ adjusted EBITDA grew 60% from $471 million in 2016 to $754 million in 2017.

Distribution increase

Phillips 66 Partners increased its 4Q17 distribution to $0.678 per unit, which represents sequential growth of 5%. Since its IPO (initial public offering) in 2013, PSXP has increased distributions for 17 consecutive quarters.

PSXP’s distributable cash flow for 4Q17 was $172 million, and its coverage ratio was 1.33x. “We are nearing our $1.1 billion year-end 2018 run-rate EBITDA target and remain on track to deliver 30 percent five-year distribution CAGR,” said Greg Garland, Phillips 66 Partners’ chair and CEO.

Distribution yields

Phillips 66 Partners is trading at a yield of 5.3%. This is lower than the ~9.3% for PBF Logistics (PBFX), ~8.3% for Holly Energy Partners (HEP), and ~7.9% for Andeavor Logistics (ANDX).

In the next part, we’ll take a look at what Wall Street analysts currently recommend for PSXP.

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