Analyst Actions: ONEOK Partners. LP Downgraded To Neutral, Target Cut $9 at Credit Suisse; Shrs Down 4.5%
Downgrade to Neutral (from Outperform): OneOk Partners ( OKS ) has over $4B of fee-based projects to be placed in service over the next three years. But OKS is a victim of weak NGL prices and collapsing Conway-Belvieu spreads, undercutting OKS prospects in 2013. Management has cut its distribution growth /unit by 850bp, to 2.8% in 2013. We are downgrading OKS units to Neutral (from Outperform).
4Q Beat but that is not the story: OKS posted 4Q results ahead of our estimates for EBITDA, DCF/unit, with a mixed bag on segments. Adjusted EBITDA of $314mm bested our $296mm and the $0.72/unit in DCF was slightly ahead of our estimate of $0.70/unit.
Trimming 2013-2014 Outlook: Management is slowing its quarterly distribution guidance from $0.02/unit per qtr to $0.005/unit taking the distribution growth in 2013 from 11.3% to 2.8%. Our forecast assumes the low end of the range on lower Belvieu-Conway spread assumptions and our bearish view of the ethane market.
Cutting TP $9 to $58: We value OKS units at ~$56-$61 ($58 TP) with total return of 3%-13% over the next 12 months when including our distribution outlook. We base our valuation using a combination of a 3-stage DDM and target yield of 4.75%-5.25% (up 50bp). We are raising the target yield significantly as a result of having to backload distribution growth. We are lowering our 2013/2014/2015 EPU estimates to $2.28/$2.61/$3.21 (from $2.76/$2.73/$3.31) respectively.