We reaffirm our Neutral recommendation on Texas-based,
Buckeye Partners L.P.
). Buckeye Partners provided dull financial results in the second
quarter 2012 with the top- and bottom-line falling short of the
respective Zacks Consensus Estimates due mainly to soft performance
at Energy Services.
Although in the past four quarters the partnership has
consistently lagged expectations, we believe its proposed capital
expenditures in the range of $275 million to $385 million for 2012
will enable Buckeye Partners to continue to actively pursue its
organic growth and cost-reduction opportunities.
However, the possibility of Federal Energy Regulatory Commission
("FERC") requiring the partnership to transition to a ratemaking
methodology less favorable than the Buckeye methodology would
adversely affect the partnership's business. Along with that
stringent environmental regulations could expose Buckeye Partners
to increasing compliance costs, which will impact the partnership's
The partnership has been successful in enlarging its operations
through periodic acquisition and equity investments. Buckeye
Partners finalized the purchase of Perth Amboy from
) for $260 million which will provide easy access to domestic and
international sourced petroleum as well as to customers in New York
Harbor. Besides, the partnership completed initial storage
expansion of 1.1 million barrels in its acquired BORCO facility.
These significant infrastructural developments will propel Buckeye
Partners' growth engine in the near future.
Nonetheless, the partnership's natural gas storage is influenced
by commodity market risks owing to relative price instability over
different delivery periods which could result in financial losses.
In addition, factors that could adversely affect the partnership's
margins are changes in economic conditions, weather variations and
unplanned pipeline outages.
On a positive note, disciplined financial strategy and healthy
distribution rates would also help arrest investors' confidences in
the partnership's stock. The distribution rate of Buckeye Partners
stood at $1.0375 per unit, which reflects growth of 2.5% year over
The Zacks Consensus Estimates for the third quarter and full
year 2012 presently stand at 74 cents per unit and $2.72 per unit,
respectively. The partnership's active competitor in the U.S.
market is Oklahoma-based,
The Williams Companies Inc
Buckeye Partners 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. The partnership's existing market capitalization stand
at $4.85 billion and it currently holds a Zacks #3 Rank (Hold
BUCKEYE PARTNRS (BPL): Free Stock Analysis
CHEVRON CORP (CVX): Free Stock Analysis Report
WILLIAMS COS (WMB): Free Stock Analysis Report
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