Referenced Stocks

Analyst Actions: Breitburn Energy Partners Coverage Initiated With Neutral, TP of $16

By MT Newswires,  June 27, 2012, 02:30:54 PM EDT

INITIATING Coverage with a NEUTRAL Rating and Target Price of $16; Shifting from Growth to Preservation.

Initiating at Neutral: We initiate coverage of BBEP with a Neutral rating and $16 target price. In our view, BBEP's unit price fairly reflects the company's slowing distribution growth prospects. Based on the current price, we forecast a total return of 10%.

Shifting from Growth to Preservation: We see BBEP's focus shifting from growing the distribution to preserving it. Following a period of renewed growth at the partnership, BBEP faces a series of headwinds in 2013-14 owing to (1) a backwardated hedge portfolio and (2) lower commodity prices.

Acquisitions Needed: To ensure its current distribution is maintained, we estimate BBEP needs to complete ~$1b of acquisitions annually to offset the dilutive impact of lower commodity prices. Given the magnitude of this number, we believe BBEP may be forced to reduce maintenance capital expenditures and/or borrow from its revolving credit facility to maintain the current distribution in 2013/2014. As things stand today, we believe BBEP is capable of maintaining its distribution through these challenges, however BBEP's access to and cost of capital will be the key factors to monitor.

Valuation: Our $16 price target for BBEP is based on a three-stage distribution discount model ( DDM ). Our assumptions include a discount rate of 9.0%, distribution CAGR of -5.1% over the first five years, 0.0% over the following five years and a terminal growth rate of 0.0%. Our $16 price target implies a yield of 11.4% in 1Q13 (12 months out) based on a forecast annualized distribution of $1.82 per unit.




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.


This article appears in: Investing, Commodities

Referenced Stocks: DDM



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