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Andeavor Logistics’ Long-Term Earnings Growth Expectations

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Earnings growth

Andeavor Logistics (ANDX) is the midstream MLP subsidiary of Andeavor (ANDV). It’s involved in crude oil and refined products transportation, terminaling, logistics, and marketing, Wall Street analysts expect ANDX to have adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $282.1 million in the first quarter of 2018 compared to $210 million in the same quarter of 2017. That represents a YoY (year-over-year) growth of 34%.

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Strong growth is expected to be driven by throughput volume growth from the Permian Basin, the Western Refining Logistics acquisition, and the acquisitions completed in 2017. The asset acquisition completed last year includes the Anacortes Logistics assets drop-down and the North Dakota Gathering and Processing assets.

For 2018, Wall Street analysts expect ANDX to post 27% YoY (year-over-year) EBITDA growth. That’s in line with its 2018 EBITDA growth guidance of 28%.

Its annual EBITDA growth rate is expected to decline to 10.1% during the 2018–2021 period. However, it’s still higher than the industry median of 6.4%. The distribution CAGR (compound annual growth rate) is expected to be 4.8% during the 2018–2021 period. ANDX’s low distribution growth expectations despite strong earnings growth projections could be attributed to its weak distribution coverage and significant capital spending plans. Its distribution coverage was 0.96x at the end of 2017.

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Valuation

ANDX was trading at a distribution yield of 8.6% as of April 12, 2018. That’s higher than the historical five-year and one-year averages of 5.7% and 8%, respectively. Its distribution yield is higher than the Alerian MLP ETF (AMLP) at 8.2%.

Analyst recommendations

About 87.5% of analysts surveyed by Reuters rate ANDX a “buy,” and the remaining 12.5% rate it a “hold” as of April 12, 2018. Its peers Phillips 66 Partners (PSXP) and Valero Energy Partners (VLP) have “buy” ratings from 66.7% and 71.4% of analysts, respectively. ANDX’s average target price of $54.30 implies an 11% upside potential from its current price.

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