Analyst Actions: ONEOK Partners. LP Downgraded To Neutral, Target Cut $9 at Credit Suisse; Shrs Down 4.5%


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Downgrade to Neutral (from Outperform): OneOk Partners ( OKS ) has over $4B of fee-based projects to be placed in service over the next three years. But OKS is a victim of weak NGL prices and collapsing Conway-Belvieu spreads, undercutting OKS prospects in 2013. Management has cut its distribution growth /unit by 850bp, to 2.8% in 2013. We are downgrading OKS units to Neutral (from Outperform).

4Q Beat but that is not the story: OKS posted 4Q results ahead of our estimates for EBITDA, DCF/unit, with a mixed bag on segments. Adjusted EBITDA of $314mm bested our $296mm and the $0.72/unit in DCF was slightly ahead of our estimate of $0.70/unit.

Trimming 2013-2014 Outlook: Management is slowing its quarterly distribution guidance from $0.02/unit per qtr to $0.005/unit taking the distribution growth in 2013 from 11.3% to 2.8%. Our forecast assumes the low end of the range on lower Belvieu-Conway spread assumptions and our bearish view of the ethane market.

Cutting TP $9 to $58: We value OKS units at ~$56-$61 ($58 TP) with total return of 3%-13% over the next 12 months when including our distribution outlook. We base our valuation using a combination of a 3-stage DDM and target yield of 4.75%-5.25% (up 50bp). We are raising the target yield significantly as a result of having to backload distribution growth. We are lowering our 2013/2014/2015 EPU estimates to $2.28/$2.61/$3.21 (from $2.76/$2.73/$3.31) respectively.

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

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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