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Analyst Actions: Tallgrass Energy Partners Coverage Initiated With Outperform, TP of $26; Shares Rise 1%

By: MT Newswires
Posted: 6/10/2013 1:32:00 PM
Referenced Stocks: TEP

Credit Suisse analysts have initiated coverage of Tallgrass Energy Partners LP ( TEP ) with an Outperform rating and a price target of $26 a share.

"We believe TEP's strong dropdown inventory ($400-$450mm in EBITDA) helps offset re-contracting risks in its natural gas transportation contracts and commodity exposure in its Midstream (processing) segment," said Credit Suisse.

Expect High Single- to low Double-Digit Growth

"TEP priced its IPO at an attractive yield of 5.3% (based on its minimum quarterly distribution) at $21.50/unit. Post IPO, TEP is well positioned to drive long-term high single-digit distribution growth, given (1) ~$425mm in EBITDA from assets available from TEP's sponsor; (2) alignment of management interest (own 25% of GP) in growing distributions; and (3) a strong balance sheet (~3x at IPO and ~2x post sale of Pony Express to TEP's sponsor for development)."

Growth From Dropdowns Offsets Re-contracting Risks

"While we don't expect TEP to initiate dropdowns until 1H:14, and both TEP and sponsor pipeline transport contracts face lower prices on re-contracting, we believe that management is likely to offset lost EBITDA by increasing the pace of dropdowns from TEP's sponsor to TEP."

Shares of TEP are up almost 1% to $21.50 in afternoon trade, and move within a 52-week range of $20.60 - $22.91.