We downgrade our recommendation on
Buckeye Partners L.P.
) to Underperform from Neutral in view of highly volatile fuel
and diesel prices which could negatively influence the
partnership's top-line growth. Besides, risks associated with
rate cases involving jet fuel transportation tariff and execution
of market rates on petroleum supply could act as potential
negative catalysts to growth.
Buckeye Partners' Energy Service business took an 8% revenue
hit in the second quarter 2012 and we believe the Energy business
would continue to face market challenges lest prices of jet fuel
and diesel recover significantly in the coming quarters. This
could be compounded by the exposure to usual generic threats
including environmental compliance costs and unplanned pipeline
outages as seen in the second quarter 2012.
Buckeye Partners' bottom-line over the last four quarters
trended down and missed our estimates by huge margins. We are
skeptical about the partnership's performance in the forthcoming
quarters. The partnership is slated to release its third quarter
financial report card before the market bell on November 1,
However, significant asset acquisition, solid financials and
development of large-scale storage facilities, which are
cornerstones of Buckeye's growth, could moderate the strong
The partnership expects these high-profile asset integrations
and well-executed projects in the pipeline and terminal as well
as storage businesses will put it in the path of a balanced
The Zacks Consensus Estimates for the third quarter and full
year 2012 presently stand at 73 cents per unit and $2.69 per
unit, respectively. The partnership's chief competitor,
The Williams Companies, Inc.
) is expected to report its third quarter financials on October
Buckeye Partners has a Zacks #4 Rank (Sell rating). Based in
Houston, Texas, Buckeye Partners L.P. is a publicly traded
partnership that owns and operates one of the largest independent
refined petroleum products pipeline systems in the United States
in terms of volumes delivered.
BUCKEYE PARTNRS (BPL): Free Stock Analysis
WILLIAMS COS (WMB): Free Stock Analysis
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