5 Nov

Top Midstream Energy Stocks: What Analysts Got Wrong

WRITTEN BY Rekha Khandelwal, CFA

Midstream energy stocks, especially MLPs, have been out of investors’ favor for quite some time. Despite stable earnings and dividend growth, MLP stock prices remain largely depressed. Let’s take a look at the top midstream energy stocks’ performance in the past 12 months. We’ll also see where the stock prices stand compared to what analysts expected.

KMI and OKE: Stocks rose as expected

Kinder Morgan (KMI) and ONEOK (OKE) rose 19% and 12%, respectively, in the last 12 months. Although the two stocks rose, the rise was slightly lower than what analysts expected.

Top Midstream Energy Stocks: What Analysts Got Wrong

Kinder Morgan stock was trading at $17.30 in November 2018. Analysts expected it to rise to $21.80. The stock is currently trading near $20.60. Analysts’ mean price target for the stock is now $22.20, which implies an upside potential of 8%. A number of potential drivers may boost the stock going forward.

Similarly, top energy stock ONEOK (OKE) has risen in the last year, as analysts expected. The stock’s mean price target is now $76.10, which implies a potential upside of 6%.

Enterprise Products Partners’ fall

While the rise in KMI and OKE was in line with analysts’ expectations, the analysts were very much off the mark in estimating MLP stock prices. To investors’ and analysts’ frustration, MLPs continue to underperform.

Enterprise Products Partners (EPD) stock has decreased around 1% in the last 12 months. The stock was trading at $27.10 in November 2018. As the above table shows, analysts expected it to rise to $34. On the contrary, it has fallen to $26.70. Although the stock’s total returns are positive, including its dividends, its price performance remains uninspiring.

Interestingly, analysts continue to be bullish on Enterprise Products Partners. Its mean price target has risen by around $1 to $34.90. The stock would have to rise 31% from its current levels to meet its price target.

Are analysts wrong on energy MLP stocks?

Energy Transfer (ET), MPLX (MPLX), and Plains All American Pipeline (PAA) have fallen around 20% in the last 12 months. Analysts expected each of the three stocks to rise. Interestingly, analysts have lowered their price targets on these energy stocks from their positions a year ago.

As the above table shows, the three stocks would have to rise significantly from their current levels to meet even the lower mean price targets. Considering their recent dismal performance, the upside looks a bit difficult to achieve.

Energy Transfer stock’s significant fall likely highlights investors’ concerns relating to its high leverage. The company’s past distribution cuts and financial practices also concern investors.

C corporation energy stocks fare better

Overall, C corporation midstream energy stocks seem to be faring better compared to their MLP peers. The only exception is Williams Companies (WMB) stock, which has fallen 9% in a year. Based on its mean price target, WMB has a potential upside of 23% from its current levels.

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