Analyst Actions: Tallgrass Energy Partners Coverage Initiated With Outperform, TP of $26; Shares Rise 1%


Credit Suisse analysts have initiated coverage of Tallgrass Energy Partners LP ( TEP ) with an Outperform rating and a price target of $26 a share.

"We believe TEP's strong dropdown inventory ($400-$450mm in EBITDA) helps offset re-contracting risks in its natural gas transportation contracts and commodity exposure in its Midstream (processing) segment," said Credit Suisse.

Expect High Single- to low Double-Digit Growth

"TEP priced its IPO at an attractive yield of 5.3% (based on its minimum quarterly distribution) at $21.50/unit. Post IPO, TEP is well positioned to drive long-term high single-digit distribution growth, given (1) ~$425mm in EBITDA from assets available from TEP's sponsor; (2) alignment of management interest (own 25% of GP) in growing distributions; and (3) a strong balance sheet (~3x at IPO and ~2x post sale of Pony Express to TEP's sponsor for development)."

Growth From Dropdowns Offsets Re-contracting Risks

"While we don't expect TEP to initiate dropdowns until 1H:14, and both TEP and sponsor pipeline transport contracts face lower prices on re-contracting, we believe that management is likely to offset lost EBITDA by increasing the pace of dropdowns from TEP's sponsor to TEP."

Shares of TEP are up almost 1% to $21.50 in afternoon trade, and move within a 52-week range of $20.60 - $22.91.

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.

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

This article appears in: Investing , Commodities

Referenced Stocks: TEP

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