In a Feb. 11 research note, Raymond James analyst Justin Jenkins reported that NGL Energy Partners LP (NGL:NYSE) had a "solid" Q3 FY19.
The limited partnership's (LP's) EBITDA and distributable cash flow (DCF) in the quarter beat the Street's forecasts. EBITDA was $132.6 million, above Raymond James and consensus' estimates of $131.2 million and $126 million, respectively. DCF came in at $84.9 million, in line with Raymond James' projection of $85 million but above the Street's estimate of $79.1 million.
Performance highlights during the quarter came from NGL's Crude Logistics and Liquids, as the Grand Mesa pipeline contributed about $55 million of adjusted EBITDA during Q3 FY19 with an average volume of roughly 129,000 barrels per day of oil. Solid performance in this segment offset lower-than-expected results from Refined Products and Water Solutions.
In other news, NGL amended its credit agreement to allow for up to $150 million of share buybacks, with a cap of $50 million worth per quarter, Jenkins noted. To activate those, the LP must meet certain financial thresholds before and after repurchases. Management is confident it will achieve those over the agreement's remaining term.
"While this is an added layer of shareholder returns, the additional read-through is the vote of confidence in the current financial model from management—(e.g.,) low leverage and ample financial flexibility—and maybe a 'floor' in NGL's unit price," Jenkins wrote.
Jenkins concluded, "We believe NGL's equity can bounce from a depressed multiple, while a distribution (with growing coverage) and new unit buyback program add to value potential. . .we still believe ample long-term value exists."
As such, Raymond James maintains its Outperform rating and $15 per share price target on the LP, whose stock is currently trading at around $11.50 per share.
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Disclosures from Raymond James, NGL Energy Partners LP, February 11, 2019
ANALYST INFORMATION
Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analysts Justin Jenkins and J.R. Weston, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and that no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Limited Partnerships may generate unrelated business taxable income (UBTI), which can create a tax liability that must be paid from a retirement account. To the extent that Raymond James is your IRA custodian, and there is potential tax liability for UBTI generated by the fund, Raymond James will take the necessary steps to pay the tax from the retirement account by working with a third party to compute the tax liability and prepare the IRS form 990-T for submission to the IRS.
Raymond James & Associates, Inc. makes a market in the shares of NGL Energy Partners LP.
Raymond James & Associates received non-securities related compensation from NGL Energy Partners LP within the past 12 months.
Raymond James & Associates has received compensation for investment banking services provided to NGL Energy Partners LP within the past 12 months.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available here.
