On Feb 14, 2013, we downgraded our recommendation on
PVR Partners L.P.
) to Underperform from Neutral. The partnership currently has a
Zacks Rank #5 (Strong Sell).
Reasons for Downgrade
The combined negative impact from PVR Partners' over-reliance on
a limited group of customers, and greater dependence on third
party service-providers for receiving and supplying gas and
natural gas liquids (NGLs) to its customers forced the downward
revision. In addition, possibilities of switching to
emission-free resources from coal, lower commodity prices and
weak coal market conditions also compelled this revision.
Causes for Concern
PVR Partners' over-dependence on a limited group of customers for
its coal royalty and natural gas midstream revenue is a risk to
its future performance. If any of these customers become
insolvent or fail to keep their commitment, the partnership's
financial results will be significantly affected.
PVR Partners is also witnessing challenges from third-party
service providers in terms of receiving and supplying gas and
NGLs. Sometimes, capacities of the interconnecting pipelines get
affected due to pipeline testing and repairing, and reduction in
operating pressure. These could also restrict revenues.
In addition, we are cautious about regulatory intervention to
minimize greenhouse gas emissions. Shift of electric power
generators to other sources of fuel or substituting the use of
coal with natural gas or renewable energy, could affect the
ability of PVR Partners' lessees to sell the coal they produce,
thus reducing coal royalty revenues.
Other Stocks to Consider
Other stocks in the energy sector that are currently performing
Atlas Energy, L.P.
Crestwood Midstream Partners LP
). All 3 carry a Zacks Rank #1 (Strong Buy).
ATLAS ENERGY LP (ATLS): Free Stock Analysis
CRESTWOOD MIDST (CMLP): Free Stock Analysis
MPLX LP (MPLX): Free Stock Analysis Report
PVR PARTNERS LP (PVR): Free Stock Analysis
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