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What Drove Andeavor Logistics’ Strong Earnings Growth in 4Q17?

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Aug. 18 2020, Updated 5:18 a.m. ET

4Q17 and 2017 earnings

Andeavor Logistics (ANDX) (formerly Tesoro Logistics Partners), a midstream MLP subsidiary of Andeavor (ANDV), posted strong earnings growth during 4Q17.

ANDX’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose to $277 million in 4Q17 compared to $177 million in 4Q16, representing a YoY (year-over-year) rise of 56.5%. Moreover, the partnership beat its 4Q17 EBITDA estimate by a small margin of 0.7%.

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In 2017, the partnership’s adjusted EBITDA rose 40.3% compared to 2016. The YoY jump in the partnership’s earnings can mainly be attributed to the acquisition of North Dakota Gathering and Processing assets, the acquisition of Western Refining Logistics, and the dropdown of Anacortes Logistics assets from Andeavor. The partnership is expected to see similar dropdowns in 2018. It expects to invest $400 million–$500 million in dropdowns in 2018.

4Q17 distribution

Andeavor Logistics declared a distribution of $1.0 per unit in 4Q17. This represented quarter-over-quarter and YoY rises of 1.5% and 10.0%, respectively. However, the partnership’s distribution coverage fell below 1x during the fourth quarter, which can be mainly attributed to equity issuances last year. The partnership expects to grow its distribution by 6% in 2018 while maintaining a distribution coverage of 1.1x. Based on its current distribution, ANDX is trading at an attractive distribution yield of 8.3%.

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2018 guidance

The partnership announced its 2018 financial guidance in December 2018. It expects its adjusted EBITDA to lie between $1.2 billion and $1.3 billion in 2018. At the midpoint, this represents 28% YoY annual EBITDA growth. This growth is expected to be driven by dropdowns and other organic expansion opportunities. ANDX expects to spend $325 million on growth projects in 2018.

Analysts’ recommendations

A total of 75.0% of the analysts surveyed by Reuters have rated Andeavor Logistics as a “buy,” and the remaining 25.0% have rated it as a “hold” as of February 22, 2018. ANDX’s average target price of $54.9 implies a ~14% upside potential from its current price level.

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