With a good record of better-than-expected quarterly earnings, a
juicy distribution yield of 6.4% and attractive organic expansion
Atlas Pipeline Partners, L.P.
) provides investors with a steady, predictable income stream. As
it nears its third-quarter report, this Zacks #1 Rank (Strong Buy)
midstream energy operator's earnings growth is expected to be
strong for the next couple of years.
Stellar Second Quarter Results
Atlas Pipeline Partners is scheduled to report its third quarter on
October 31. The Zacks Consensus Estimate is at 25 cents per share.
It has posted 5 positive earnings surprises in the past 6 quarters
with an average beat of more than 175%.
On August 1, Atlas Pipeline Partners reported second quarter 2012
earnings per limited unit of $1.35, soaring almost 265% from last
year's 37 cents and topping the Zacks Consensus Estimate by 575%.
The positive variances were primarily due to strong volume growth
(processing and gathering up 27% and 30% year over year,
Adjusted earnings before interest, tax, depreciation and
amortization (EBITDA) stood at $49.1 million, reflecting a high of
nearly 13% from the year-earlier period. Despite the weak natural
gas and NGL prices over the prior year, Atlas Pipeline has been
able to boost processed volumes on all of its systems.
More importantly, distributable cash flow (DCF) - an indicator of
cash paid for distribution to unitholders - increased 9.7% to $32.8
million year over year, providing a healthy 1.01x distribution
Consistent Distribution Growth
Atlas Pipeline Partners pays an annual distribution of $2.24 per
limited partner unit, yielding an impressive 6.4%. After increasing
the distribution by 19% over the past 12 months - mainly buoyed by
higher operating results - the partnership maintains an attractive
investment profile. Since 2009, it has been able to grow its
distribution by more than 273%.
Given strong volume growth trends, this midstream partnership is
expected to maintain a decent coverage. The growth drivers include
organic expansion opportunities on the back of its robust asset
base. Atlas Pipeline is in the process of expanding its total
system capacity from 600 million cubic feet per day to 1.1 billion
cubic feet per day by 2014.
High Earnings Growth Prospects
Analysts see impressive earnings growth for Atlas Pipeline over the
next couple of years backed by solid performances across all
segments. The 2012 Zacks Consensus Estimate is at $1.46,
representing a 12.3% earnings per unit growth over 2011. Next
year's Zacks Consensus Estimate is $1.92, representing solid growth
With respect to its valuation metrics, units of Atlas Pipeline
Partners look attractive given its attainable earnings growth
prospects and rising income. Its price-to-sales (P/S) ratio of 1.43
is below the peer group average of 4.27. Again, its price to book
(P/B) ratio of 1.52 trades at a 4.4% discount to the peer group
average of 1.59.
The trailing 12-month return on equity (ROE) of 13.0% is much
better than its peer group average of 11.0%. The stock also looks
attractive with regard to its trailing 12-month return on assets
(ROA) of 8.0%, which is above the peer group average of 5.9%.
Market Performance & Technicals
Since the announcement of the second-quarter distribution in July,
Atlas Pipeline units have fared better than the simple moving
average for 50 days or SMA (50) baring a few hiccups.
In particular, the continuous uptrend in stock prices and the ever
increasing gap between the unit price and the moving average since
October signal a bullish trend. In October, Atlas Pipeline Partners
announced the completion of an expansion project at its Wayonka
natural gas processing facility in northwest Oklahoma.
Formed in 1999, Atlas Pipeline Partners is a master limited
partnership engaged in natural gas gathering and processing
services in the Mid-Continent as well as the Appalachian Basin in
the eastern United States. It owns and operates approximately 9,100
miles of gathering pipelines and seven processing plants. The
partnership also has a 20% interest in the Chevron Corp. (
)-led West Texas LPG Pipeline Limited Partnership.
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