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BPL at Lows Seen during the Financial Crisis: Offers 39% Upside

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Recent market performance

Buckeye Partners (BPL), the midstream MLP mainly involved in crude oil, refined products, and NGLs (natural gas liquids) transportation and terminaling, has been in a downtrend over the past two months. It has fallen ~34% from its YTD (year-to-date) high of $57.1, which it saw during the end of January 2018.

Overall, Buckeye Partners has fallen 24.0% since the beginning of the year and has reached the levels it last saw in 2009 during the financial crisis.

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BPL’s recent weakness can be attributed to the general negative sentiment in the midstream energy sector and the partnership’s weak earnings growth due to its lower capacity utilization at its marine terminals and the expiration of certain long-term contracts. Phase 2 of Buckeye Partners’ Michigan/Ohio expansion project is expected to face further delays after a PUC (public utility commission) judge recommended the denial of the Laurel Pipeline reversal plan. This could also be weighing on BPL’s stock performance.

Valuation analysis

Buckeye Partners was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 9.4x on March 30, 2018—below the partnership’s one-year and five-year averages of 11.3x and 13.5x, respectively. Moreover, BPL’s current distribution of 13.5% is significantly higher than its five-year average of 7.0% and the Alerian MLP ETF’s (AMLP) distribution yield of 9.0%. The negatives seemed to be more than priced in to the partnership’s valuation, and any positive from here should be a buying opportunity for BPL stock.

Analysts’ recommendations

Buckeye Partners ranks seventh among the top midstream companies in terms of upside potential. It’s currently trading below the low range ($42) of analysts’ target prices. BPL’s average target price of $52.5 implies a ~39% upside potential from its current price level.

In the next article, we’ll look into the upside potential of EQT Midstream Partners (EQM).

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