NuStar Energy L.P.
) - owner/operator of crude oil and refined products pipelines and
storage facilities - has priced a public offering of 6,200,000
common units at $48.94 a piece, with a 30-day over-allotment option
for an additional 930,000 units.
NUSTAR ENERGY (NS): Free Stock Analysis Report
NUSTAR GP HLDGS (NSH): Free Stock Analysis
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The transportation and storage master limited partnership (MLP)
plans to use the net proceeds from this offering to pay back the
outstanding debt under its revolving credit facility, to finance
potential future acquisitions, and for general partnership
purposes. The offering is expected to close on September 10, 2012.
As per NuStar, William E. Greehey - the chairman of NuStar's
NuStar GP Holdings LLC
) - may purchase approximately 490,000 common units in the
NuStar currently retains a Zacks #5 Rank (short-term Strong Sell
rating). We are also maintaining our long-term Underperform
recommendation on the unit.
San Antonio, Texas-based NuStar 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
is one of the largest asphalt refiners and marketers in the U.S.
and the second largest independent liquids terminal operator in the
NuStar recently reported grim second quarter 2012 results, with
earnings per unit (EPU) of 6 cents coming significantly lower than
the Zacks Consensus Estimate of 52 cents. Comparing year over year,
reported result declined heavily from the adjusted profit of $1.34.
The underperformance was mainly on account of losses in its asphalt
and fuel marketing segment (which contribute roughly half of total
Though we welcome the partnership's announcement to sell a 50%
stake in its volatile asphalt operations, the non-cash write-down
associated with the transaction was a further drag on NuStar's June
We also remain concerned about NuStar's high debt levels, which
leave the partnership vulnerable to an extended downturn. As of
June 30, 2012, NuStar had debt (including current portion) of more
than $2.6 billion, representing a debt-to-capitalization ratio of
Finally, over the last few years, NuStar has consolidated its
business through a combination of organic efforts and accretive
acquisitions. We believe the higher operating expenses associated
with this expanded asset base may lead to reduced returns going
Given these concerns, we expect NuStar to perform below its peers
and industry levels in the coming months, which gives investors
little reason to hold the stock.