A Midstream Energy MLP With a Nice Upside
Energy Trends Finance
In This Issue
Global Partners (GLP)
Magellan Midstream Partners LP (MMP): BUY
Changes to Previous Recommendation
In the last investment note to our readers, I spoke about Magellan Midstream Partners LP (NYSE: MMP), a master limited partnership or MLP. This week I want to talk about another pipeline infrastructure MLP – Global Partners (NYSE: GLP).
In our current high volatile capital markets and low bond yields, MLPs with a high dividend yield provide downside risk support to their share prices. Additionally, MLPs that provide a critical “middleman” role regardless of whether energy prices are high or low provide relative stability to their revenues and earnings growth, as they are the necessary infrastructure link in the energy value chain moving energy molecules from producers to final consumers.
Midstream Logistics & Marketing
Who is GLP, and what is the scope of their operations? They are a midstream logistics and marketing MLP. The Company transports Bakken and Canadian crude and other energy products via rail, from the mid-continent region of the U.S. and Canada to refiners and other customers on the East and West coasts.
It owns, controls, or has access to one of the largest terminal networks of petroleum products and renewable fuels in the Northeast, and is one of the largest wholesale distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in New England and New York. GLP has roughly 1,000 owned, leased, and/or supplied gasoline stations primarily in the Northeast. In addition, it also distributes natural gas.
Dividends and Stock Performance
GLP sports a 6.4% dividend yield, has recorded EBITDA growth of 58% in 2012 from 2011, and is targeting an increase in 2013 EBITDA from 2012 of 35% to 46%. The company has reported positive free cash flow (FCF = operating cash flow less capital spending) in the 4Q of 2012 and 1Q of 2013; indeed FCF jumped over 800% in the 1Q 2013 from 4Q 2012, and quarter over quarter (1Q to 1Q) went from a deficit to a positive amount of $271MM. Strong FCF has allowed GLP to increase distributable cash flow to shareholders by 73% for the full year 2012 from 2011, and 275% 1Q 2012 to 1Q 2013.
In the 1Q 2013, GLP beat analyst expectations on revenues and earnings, and has exceeded revenue expectations for six straight quarters. Although its debt to capital at roughly 60% is relatively high, its interest coverage ratio of EBITDA to debt expense at 4.4 is at its peers median level. The stock has very low to insignificant short interest exposure.
Over the last rolling twelve months GLP has performed exceptionally well, outperforming fellow pipeline MLPs, such as, Plains All American Pipeline, L.P. (PAA), Kinder Morgan Energy Partners, L.P. (KMP), and Enterprise Products Partners L.P. (EPD). It has been competitive with Magellan Midstream Partners LP (MMP), and since the beginning of the year has outperformed MMP — one of our MLP favorites (See last week’s investment note on MMP).
GLP is currently dancing above its 50-day moving average, which is above its 200-day moving average – both positive signs. Its immediate line of support is its 50-day moving average at 35.68; GLP’s longer term line of support is 31.34 at its 200-day moving average.
BOTTOM LINE: I like GLP’s outlook as an infrastructure player feeding hydrocarbons into the Northeast. Stock has an exceptional dividend distribution yield that provides a floor of support to the stock, and has very little short interest. The stock has recently been pulling back, I recommend buying modest amounts as the stock continues to pullback toward its long-term line of support at 31.34. Place a firm stop-order limit at 30.00. BUY.
Price Target: 42.00 within the next six months.
Global Partners LP
800 South Street
Waltham, MA 02454-9161
LOU GAGLIARDI’S CURRENT RECOMMENDATIONS
An important caveat for our readers: the energy market is increasingly volatile—an environment that is unlikely to abate. Depending upon your risk/reward tolerance, it is always a good idea to take some profits and look for lower re-entry points. To be clear, I select energy ideas with an eye to a long-term investment horizon. However, taking some profits is a good way to minimize your downside risk … how much depends upon your own individual risk/reward tolerance.
Magellan Midstream Partners LP (MMP): Stock continues to show positive upward strength moving above both its 50-day and 200-day moving averages. Continue to buy on pullbacks toward its 50-day moving average of 52.70, keep a firm stop-order limit at 47.00. BUY.