On Jun 27, we have issued an updated research report on Buckeye Partners LP (BPL). The pipeline operator stands to benefit from its attractive portfolio of fuel transportation assets. The acquisition of Hess Corp.’s (HES) pipeline terminal assets by Buckeye is expected to bring in additional customers, which in turn will fetch lucrative returns to the partnership. Buckeye was able to secure multi-year storage and throughput for these facilities from Hess’ Retail Marketing business.
On the flip side, the partnership’s assets are located in regions which are exposed to severe weather variations which might pose operational risks. Moreover, strict environmental legislations could lead to a rise in compliance costs.
Buckeye Partners, a Zacks Rank #3 (Hold) stock, posted unfavorable results in the first quarter of 2014 with bottom line lagging the Zacks Consensus Estimates. Escalating costs along with dilution from higher units outstanding negatively impacted earnings. Revenue, on the other hand, beat our expectation thanks to increased contributions from Buckeye Partners’ Merchant Services, Global Marine Terminals, Development & Logistics and Pipeline and Terminal operations.
Going ahead, oil production is displaying a strong growth trajectory in the U.S. owing to modern drilling technologies. As per the Energy Information Administration, crude oil production is estimated to reach 9.3 million barrels per day in 2015, a 25.7% increase from 2013 levels. This will create a substantial demand for pipeline capacity, which in turn will act as a tailwind for Buckeye Partners.
Meanwhile, the partnership’s quarterly distribution hike of 1.1% to $1.10 per unit announced in May 2014 will retain investors’ confidence on the stock.
Key Picks from the Sector
Other better-ranked pipeline players include Magellan Midstream Partners LP (MMP) and Energy Transfer Partners, L.P. (ETP). Both the stocks currently carry a Zacks Rank #1 (Strong Buy).
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