On Apr 8, we issued an updated research report on Buckeye Partners L.P. BPL. The partnership is poised to benefit from its organic growth projects as well as acquired assets. Fee-based, long-term service contracts provide a measure of certainty to its cash flow. However, rising competition and merger among its customers could have an adverse impact on Buckeye Partners’ performance.
The partnership reported fourth-quarter 2014 earnings from continuing operations of 82 cents per unit, below the Zacks Consensus Estimate of 90 cents. On a year-over-year basis, earnings escalated 7.9% primarily due to a decent performance at some of its segments and a decline in operational costs.
Buckeye Partners continues to pursue both organic and acquisition-driven growth to expand its scale of operations. During 2014, Buckeye invested around $472.1 million, up 30.6% year over year. Completion of development projects and contribution from acquired assets are expected to drive the performance of this partnership. The momentum will be kept alive by new projects coming online this year.
However, new pipelines being built by major integrated oil and gas companies could intensify competition in the pipeline business. In addition, mergers among its customers could result in lower volumes being shipped through its pipelines or stored in its terminals. As merged entities, existing customers are likely to start utilizing their own pipeline or storage facilities for transportation of fossil fuels.
Buckeye’s business is however based on long-term, fee-based contracts with its oil and gas customers. The nature of these contracts provides a certainty of cash flow despite the softness in crude oil prices. This enables the partnership to pay regular cash distribution to its unitholders.
Buckeye Partners currently has a Zacks Rank #3 (Hold). Shell Midstream Partners, L.P. SHLX, Valero Energy Partners LP VLP and Energy Transfer Equity, L.P. ETE are better-ranked stocks in the space. While Shell Midstream Partners and Valero Energy Partners LP sport a Zacks Rank #1 (Strong Buy), Energy Transfer Equity carries a Zacks Rank #2 (Buy).
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