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Analyzing the Top 5 MLPs That Analysts Recommend

Rekha Khandelwal, CFA - Author

Aug. 6 2019, Updated 11:12 p.m. ET

Wall Street analysts base their stock recommendations on extensive research and analysis. Although they are not always right, they provide good insights into factors that may be moving a stock. Let’s take a look at five MLPs that are analysts’ current favorites—more than 90% of analysts covering the respective MLPs have rated these as “buys.”

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Enterprise Products Partners: A top MLP

The first MLP on our list is Enterprise Products Partners (EPD). Enterprise Products Partners is one of the best MLP stocks in terms of yield, coverage, leverage, operational performance, and growth prospects. Plus, all 26 Reuters-surveyed analysts covering Enterprise Products rate it as a “buy.”

Based on its mean price target, Enterprise Products stock has an upside potential of 17% from its current levels. Additionally, the stock is trading at an attractive yield of 5.9%.

Enterprise Products Partners reported strong second-quarter results. “Record volumes in our fee-based businesses, contributions from new assets placed into service over the past year and the benefit of natural gas price spreads across Texas more than offset the impact of lower NGL prices on our natural gas processing activities,” noted A.J. “Jim” Teague, chief executive officer of Enterprise Products Partners. In the second quarter, EPD’s adjusted EBITDA rose 18% year-over-year.

After Enterprise Products’ strong second-quarter performance, RBC, Mizuho, Stifel, and UBS raised their respective price targets for the stock. Plus, Enterprise Products has a mean price target of $35.

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Why analysts recommend MPLX MLP

Another MLP that received a “buy” rating from 92% of the surveyed analysts is MPLX (MPLX). The Marathon Petroleum (MPC) subsidiary has an upside potential of roughly 39% based on its mean price target. MPLX offers an attractive yield combined with healthy coverage and leverage metrics.

At the end of Q2, MPLX had a robust distribution coverage of 1.36x and a debt-to-adjusted-EBITDA ratio of 3.9x. The company reported 6% year-over-year growth in adjusted EBITDA in Q2.

MPLX stock fell 4.3% on August 5, the record date for its Q2 distributions. On August 2, after the company’s second-quarter results, Raymond James cut its price target for the stock from $38 to $34. On the same day, UBS raised its price target for MPLX from $37 to $38.

Energy Transfer: a high-yield MLP

The next MLP on our list is Energy Transfer (ET). With 90% of surveyed analysts rating it as a “buy,” Energy Transfer has an upside potential of roughly 50% from its current price. The stock offers a generous yield of 8.6%.

Energy Transfer has a history of a complex structure, distribution cuts, and aggressive financial practices. Notably, these factors increase investors’ risk perception for the stock, resulting in its higher yield.

Royalty interest owners VNOM and BSM

Two names on our list of most recommended MLPs are royalty interest owners Viper Energy Partners (VNOM) and Black Stone Minerals (BSM). Of the surveyed analysts covering the two MLPs, 100% rated them as a “buy.” Based on their respective mean price targets, Black Stone Minerals offers an upside potential of 42%, and Viper Energy Partners offers an upside potential of around 34%.

Black Stone Minerals raised its production guidance for 2019 on August 5. “Despite a challenging environment for the broader energy sector, Black Stone posted a solid quarter with new records for both total and royalty volumes. We generated distribution coverage of 1.3x while maintaining the $1.48 per unit annualized distribution,” noted Thomas L. Carter, Jr., Black Stone Minerals’ CEO and chairman. Plus, BSM stock offers a yield of approximately 10%.

On July 30, Viper Energy Partners posted strong second-quarter results. VNOM, Diamondback Energy’s (FANG) MLP subsidiary, is trading at a yield of more than 6%. Viper Energy Partners stock saw upward price revisions after its earnings release.

Northland Capital, Citigroup, Raymond James, Stifel, and Capital One Securities raised their respective price targets on Viper Energy Partners after its Q2 results. The stock currently has a mean price target of $40.60.


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