On Sep 18, Zacks Investment Research upgraded San Antonio,
Texas-based publicly traded partnership
NuStar Energy LP
) to a Zacks Rank #3 (Hold).
Why the Upgrade?
The master limited partnership (MLP) is the second largest
independent liquids terminal operator in the nation and is
engaged in transportation and storage of crude oil as well as
refined products in the U.S., the Netherlands Antilles, Canada,
Mexico and the U.K.
NuStar holds a diversified pipeline and storage folio and expects
to benefit from its strong foothold in the Eagle Ford shale play.
Last month, the company closed its senior notes offering worth
$300 million which are due to mature in Feb 2021. We consider
this as a positive move as NuStar plans to use the proceeds to
partly settle the outstanding debt which has risen to concerning
Recently, NuStar had entered into a deal to buy bunker fuel for
its customers in St. Eustatius and the Caribbean region. Its
bunker fuel marketing operations have been affected by
unfavorable market situations and lower demand during recent
months. The contract will help the company to tide over this
situation as it expects the deal to lower its price fluctuation
exposure as well as significantly diminish its working capital
cost by roughly $40-$50 million.
Prior to that, on Jul 26, NuStar had announced
better-than-expected second-quarter 2013 earnings per unit (EPU)
of 27 cents on the back of higher contribution from Pipeline and
Fuels marketing businesses.
However, we believe these positives are already reflected in its
current valuation, so there is not much upside from the current
Moreover, apart from the inherent seasonality of the road
construction business, we remain concerned about NuStar's
exposure to the asphalt business. This increases the
partnership's vulnerability due to volatile commodity prices and
adds to its risk profile.
Stocks That Warrant a Look
We expect NuStar to perform in line with its peers and industry
levels in the coming months and advise investors to wait for a
better entry point before accumulating shares. Meanwhile, one can
consider other energy pipelines and terminals operators like
Magellan Midstream Partners LP
Pioneer Southwest Energy Partners L.P.
) which sport a Zacks Rank #1 (Strong Buy) or
Delek Logistics Partners, LP
) which currently holds a Zacks Rank #2 (Buy).
DELEK LOGISTICS (DKL): Free Stock Analysis
MAGELLAN MDSTRM (MMP): Free Stock Analysis
NUSTAR ENERGY (NS): Free Stock Analysis
PIONEER SW EGY (PSE): Free Stock Analysis
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