NuStar Energy L.P.
) grim third quarter results, we have recalibrated our investment
thesis on the midstream energy partnership to Underperform from
San Antonio, Texas-based NuStar is a master limited partnership
(MLP), which engages in the transportation and storage of crude
oil as well as refined products in the U.S., the Netherlands
Antilles, Canada, Mexico and the U.K. The partnership has
interests in asphalt refining and marketing in the U.S. and is
the second largest independent liquids terminal operator in the
NuStar's current asset base includes 8,417 miles of pipelines,
90 terminal facilities, 4 crude oil storage tank facilities, a
fuels refinery with a processing capability of 14,500 barrels per
day, and 50% interest in 2 asphalt refineries with a combined
throughput capacity of 104,000 barrels per day. The partnership's
combined system has more than 94 million barrels of storage
NuStar recently reported weak third quarter profits, hamstrung by
lower margins in its asphalt and fuels marketing business. The
owner and operator of crude oil and refined products pipelines
and storage facilities reported earnings per unit (EPU) -
excluding special items - of 19 cents, well below the Zacks
Consensus Estimate of 50 cents and the year-ago profit of 92
Though we welcome the partnership's decision to sell a 50% stake
in its volatile asphalt operations, the continued poor outlook
for the sector will be a further drag on NuStar's near to medium
We also remain concerned about NuStar's high debt levels, which
leave the partnership vulnerable to an extended downturn. As of
September 30, 2012, NuStar had long-term debt (including current
portion) of more than $2 billion, representing a
debt-to-capitalization ratio of around 43%.
Considering these factors, we see NuStar - which was spun off
from the U.S. refiner
Valero Energy Corp.
) in 2006 - as a risky bet from which ordinary investors should
exit. Our new long-term Underperform recommendation is supported
by a Zacks #5 Rank (short-term Strong Sell rating).
NUSTAR ENERGY (NS): Free Stock Analysis
VALERO ENERGY (VLO): Free Stock Analysis
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