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ANDX Completes Its $1.55 Billion Dropdown in Q2 2018

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ANDX’s second-quarter earnings

Acquisitions and dropdown opportunities continued to drive positive earnings growth for Andeavor Logistics (ANDX) during the second quarter. 

ANDX, a midstream MLP subsidiary of Andeavor (ANDV), reported adjusted EBITDA of $289 million in the second quarter compared to $226 million in the second quarter of 2017, a YoY (year-over-year) rise of 28.0%. Moreover, the partnership met its second-quarter EBITDA estimate of $288.0 million.

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At the same time, Andeavor Logistics’ distributable cash flow grew 20.9% YoY, leading to a slight improvement in the partnership’s distribution coverage position. ANDX’s second-quarter distribution of $1.03 per unit represented a 6.1% YoY rise. ANDX expects to grow its distribution by 6% while maintaining a distribution coverage of 1.1x in 2018.

A $1.55 billion dropdown

The partnership announced the successful completion of a $1.55 billion dropdown from ANDV during its second-quarter earnings results. The assets are expected to partially contribute to the partnership’s 2018 EBITDA. In 2019, the assets are expected to generate between $105 million and $115 million in annual EBITDA.

According to the related press release, “When adjusting for the additional capital and earnings from these investments, this transaction represents a multiple of approximately 8.4 times anticipated 2019 EBITDA and 7.8 times anticipated 2020 EBITDA. The transaction is expected to be immediately accretive.”

ANDX is now projecting adjusted EBITDA of $1.20 billion–$1.30 billion for 2018. At the midpoint, this represents a 28% YoY rise compared to 2017. For 2019, analysts expect a ~18% YoY rise in its EBITDA.

Analysts’ recommendations

A total of 57.1% of analysts surveyed by Reuters have rated Andeavor Logistics as a “hold,” 35.7% have rated it as a “buy,” and the remaining 7.1% have rated it as a “sell.” Bank of America recently downgraded Andeavor Logistics to an “underperform,” which is equivalent to a “sell,” from a “neutral,” which is equivalent to a “hold.”

Overall, ANDX has seen five rating updates since the announcement of the merger deal between Marathon Petroleum (MPC) and Andeavor (ANDV). ANDX is currently trading above its average target price of $49.1.

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