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Western Gas Partners Beat Its Earnings Estimate in 4Q17

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4Q17 and 2017 earnings

Western Gas Partners (WES), the midstream MLP mainly involved in natural gas gathering and processing, posted a 1.8% YoY (year-over-year) rise in its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in 4Q17.

Moreover, the partnership beat its EBITDA estimate by 3.7%. For the whole of 2017, the partnership posted a 3.2% YoY rise in adjusted EBITDA.

The YoY increase in WES’s 2017 EBITDA was the result of higher crude oil and NGLs (natural gas liquids) throughput volumes. This rise was partially offset by lower natural gas throughput volumes primarily resulting from the impact of the DBJV-for-Marcellus asset swap.

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WES’s distributable cash flow rose to $928.9 million in 2017 compared to $852.4 million in 2016, a YoY rise of 9.0%. This led to an improvement in the partnership’s distribution coverage ratio. The partnership declared a distribution of $0.92 per unit for 4Q17, “making a full-year 2017 distribution increase of 7-percent over the full-year 2016” as noted in the related press release.

2018 guidance

The partnership announced its guidance for 2018 in December 2017. It expects to end 2018 with adjusted EBITDA of between $1.2 billion and $1.3 billion. At the midpoint, this represents a 13.0% YoY rise. The partnership’s strong YoY growth in adjusted EBITDA is expected to come mainly from organic expansion projects. It expects total capital expenditure of $1.0 billion–$1.1 billion in 2018, including $80 million–$90 million in maintenance capital expenditure.

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WES’s strong EBITDA growth is expected to translate to strong distribution growth. It expects to grow its distribution at a fixed rate of 1.5 cents per quarter through 2019 while maintaining a distribution coverage of 1.1x. Its 2018 distribution target translates to annual distribution growth of 6.7%. Based on its recent distribution, WES is trading at an attractive distribution yield of 7.8%.

Analysts’ recommendations

52.6% of the analysts surveyed by Reuters have rated Western Gas Partners as a “buy,” and the remaining 47.4% have rated it as a “hold.” Barclays last downgraded Western Gas Partners to “equal-weight” from “overweight.”

The partnership is currently trading below the low range ($47.2) of analysts’ target price for its stock. WES’s average target price of $57.2 implies a 21% potential upside from its current price level.

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