Tesoro Logistics L.P.
) has priced a public offering of 3,700,000 common units at $41.80
a piece, with a 30-day over-allotment option for an additional
555,000 units. The master limited partnership (MLP) plans to use
the net proceeds from this offering for general partnership
purposes. The offering is expected to close on October 5, 2012.
San Antonio, Texas-based Tesoro Logistics is engaged in the
ownership, operation, development and acquisition of crude oil and
refined products logistics assets. The partnership currently
retains a Zacks #3 Rank (short-term Hold rating).
Tesoro Logistics - which went public on April 26, 2011 - reported
second quarter earnings per unit of 41 cents on August 6, beating
the Zacks Consensus Estimate of 39 cents by 5%. Revenues of $33.2
million also surpassed the Zacks Consensus Estimate of $29.0
million. Results were driven by a 40% improvement in crude oil
Tesoro Logistics is set to benefit from its ties with asset-rich
), which retains a 56% stake in the partnership. A sound fee-based
relationship with Tesoro - the nation's second-largest independent
refiner - shields the pipeline operator from competitive pressures
in the midstream energy space, providing it with stable cash flows
and consistent top-line growth opportunities.
Additionally, the partnership continues to leverage its
relationship with Tesoro to make 'drop-down' transactions (or asset
buys from the partnership's sponsor company). As part of this
arrangement, Tesoro Logistics recently bought the Martinez crude
oil marine terminal from Tesoro for $75 million and is expected to
purchase more properties - including the Long Beach marine terminal
and the Los Angeles short-haul pipelines - during the second half
The 'drop-downs' are expected to be immediately accretive to Tesoro
Logistics' distributable cash flow, thereby boosting cash
distributions. As it is, the partnership already dishes out a
quarterly payout of 41 cents per unit ($1.64 per unit annualized),
yielding an impressive 3.7%.
However, we believe that these positive aspects are well reflected
in the current share price, leaving little room for upward movement
in the near term. We are also concerned about the partnership's
lofty valuation. Units of Tesoro Logistics are going for about 24.6
times forward estimates, a 25% premium to the peer group average of
19.6x. Another headwind for us is Tesoro Logistics' dependence on
its parent company for virtually all of its revenues.
TESORO LOGISTIC (TLLP): Free Stock Analysis
TESORO CORP (TSO): Free Stock Analysis Report
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