In the previous part, we discussed the chances of a distribution cut announcement from Buckeye Partners (BPL) during the company’s second-quarter earnings. In this part, we’ll discuss the possible stock price reaction in case the partnership goes ahead with a cut. The initial reaction would likely be negative considering the partnership’s strong historical distributions and general distribution growth recovery in the sector.
However, a lot of distribution cut expectations might be priced in. Currently, Buckeye Partners is trading close to its 2008 lows. The MLP has experienced heavy selling pressure despite strong crude oil prices and a slight recovery in the midstream energy sector. Overall, Buckeye Partners has lost 30.5% since the beginning of 2018. NuStar Energy (NS) and Shell Midstream Partners (SHLX) have lost 17.0% and 22.8% YTD, respectively, while Magellan Midstream Partners (MMP) has gained 0.5%. The Alerian MLP ETF (AMLP) has gained 0.3%. Buckeye Partners is underperforming AMLP by 3,080 basis points.
A distribution cut would likely be positive for the partnership’s long-term outlook and could result in positive rating changes at Moody’s. Buckeye Partners stock could even see gains following an initial negative reaction if there’s a distribution cut.
Buckeye Partners’ price forecast
Buckeye Partners’ 30-day implied volatility was 28.9% as of July 30—slightly below the 15-day average of 29.3%. In comparison, the Alerian MLP ETF (AMLP) has an implied volatility of 16.0%. Based on Buckeye Partners’ current implied volatility, the company is expected to trade in the range of $33.04–$35.78 in the next seven days. Buckeye Partners is expected to trade within this range with a 68.0% probability—assuming a normal distribution of prices.
Next, we’ll discuss Buckeye Partners’ technical indicators.