DOWNGRADING to NEUTRAL (from Outperform) After Nearly 25% YTD
Run; Revising Ests & TP to $41 (from $39).
Downgrading on Valuation: "We are downgrading EQM to Neutral
(from Outperform) on valuation as EQM has rallied nearly 25% thus
far in 2013 and appears fairly valued, in our opinion."
Raising TP to $41 (from $39): "Our revised $41 TP (from $39) is
based on a 3.75%-4.0% target yield range on our annualized 4Q13
distribution estimate of $1.60/unit, giving us a TP range of
$40-$42 and $41 TP. Adding an expected $1.525 in distributions over
the NTM implies total return potential of 7%-14% which is not
enough for us to stay at Outperform thus our downgrade to
Longer term story remains intact: EQM is well positioned to
drive 10%+ annual distribution growth over the next five years from
drop downs from a large and growing portfolio of mid-stream assets
from its parent EQT Corp. (
). Our estimates include annual $250mm dropdowns through 2015 and
$300mm of dropdowns in 2016. We are revising our FY14 EPU estimates
to $2.04 (from $2.03)."
Risks to Our Call: "Upside risks include investors bidding the
yield still lower as cash continues to flow into the market in
search of attractive low moderate risk alternatives that offer
attractive and growing dividends and/or distributions. Downside
risks include falling NGL prices that could slow Marcellus
production which could slow the development of midstream assets at
parent, EQT Corp. and thereby slow the distribution growth story at
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