We are upbeat about NuStar Energy LP’sNS prospects and believe it is a promising pick right now.
The partnership currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s take a look at the other factors that make this midstream energy service provider an attractive bet.
Steady Fee-Based Revenues
The partnership’s sizeable operating assets comprise diversified liquids terminal and pipeline, making it a leading player in the U.S. midstream energy space. NuStar has operating interests in liquid pipelines, spreading across 9,800 miles, and 74 terminal and storage facilities with the capacity to store 74 million barrels. The assets generate steady fee-based revenues for the partnership.
The partnership is positioned to generate additional cashflows by capitalizing on the prevailing pipeline bottleneck problem. Notably, NuStar is constantly making efforts to expand its Permian Crude System by connecting it with the third-party pipelines and new crude wells. Through the Permian Crude System, the partnership generates incremental profit, thanks to rising throughput volumes.
Growth Projects
The Permian drillers are getting more efficient and are in a position to increase crude production despite low prices. According to a report by NuStar, production crude volumes from the basin will continue to grow in the coming years even if oil price is at around $50-a-barrel.
Higher crude production will drive demand for the partnership’s pipeline networks, securing additional fee-based revenues. The partnership is also well positioned to generate incremental cashflow from its export projects that entail the transportation of Permian oil volumes to its Corpus export facility.
Strong Balance Sheet & DCF
NuStar has successfully managed to lower its Debt to EBITDA ratio to 3.95x as of the June quarter of 2019 from 4.72x in the second quarter of 2018. This reflects the partnership’s strengthening balance sheet.
Moreover, NuStar has increased its distributable cashflows (DCF) by roughly 10% year over year in the June quarter of 2019.
Other Stocks to Consider
Other prospective players in the energy space include World Fuel Services Corporation INT, Delek Logistics Partners, L.P. DKL and TC PipeLines, LP TCP. While World Fuel sports a Zacks Rank #1 (Strong Buy), Delek Logistics and TC PipeLines carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
World Fuel beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being 16.4%.
Delek Logistics is likely to see earnings growth of 4.9% through 2019.
TC PipeLines has an average positive earnings surprise of 12.6% for the past four quarters.
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