Legacy Reserves (LGCY), an upstream MLP, is eighth among MLPs in terms of EBITDA growth. Wall Street analysts expect the partnership to post 61.6% YoY (year-over-year) EBITDA growth in the second quarter of 2018. Its strong YoY EBITDA growth is expected to be driven by higher production and higher average realized sales prices due to gains in the price of crude oil.
However, the widening of the WTI Cushing–WTI Midland spread could weigh on its average realized sales price. The spread averaged $7.80 per barrel in the second quarter compared to $0.80 per barrel in Q2 2017 and $0.30 per barrel in Q1 2018.
Legacy Reserves was trading at a forward EV[1. enterprise value]-to-EBITDA multiple of 5.4x as of July 23, which is below the one-year and three-year averages of 6.0x and 7.4x, respectively. Legacy Reserves might be a good buying opportunity considering its improved financial position, strong 37.1% YoY earnings growth guidance for 2018, and its transition from an MLP to a C corporation.
Currently, UBS has coverage in Legacy Reserves. It recently upgraded the stock to a “buy.”
In the next part, we’ll look at the earnings growth forecast for Phillips 66 Partners (PSXP).