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DDM

Analyst Actions: El Paso Pipeline Partners Ests, Target Price Cut At Credit Suisse

4Q Miss; Higher Opex and Recontracting Weigh; Reiterate OP - Getting Paid to Wait; Lowering Estimates & TP to $39 (from $41).

4Q11 Results Below Expectations: EPB reported 4Q11 adjusted EBITDA of $239mm and DCF of $139mm, below our estimates of $261mm and $165mm, respectively. Results were primarily impacted by higher operating expenses, contract expirations and increased competition within the Rockies. EPB's distribution of $0.50/unit was in-line with our forecast.

Higher Opex and Recontracting Challenge: EPB noted that operating expenses increased due to pipeline integrity expenses which are expected to be completed by the end of 2012. That said, the company stated that opex is likely to remain elevated beyond 2012. Furthermore, EPB is likely to continue to face recontracting risk (primarily in the Rockies) owing to increased competition and production declines in the area, in our view.

Getting Paid to Wait (for Dropdowns): Despite near-term headwinds, we continue to believe EPB offers investors a compelling total return potential given a current yield of 5.7% and a forecast 3-year distribution CAGR of 9.0%. We acknowledge long-term growth visibility is somewhat clouded by the pending acquisition of El Paso Corp ( EP ) by Kinder Morgan Inc. ( KMI ), however we continue to believe KMI will drop down assets to EPB once the acquisition is complete. In our view, EPB unit holders are getting paid to wait.

Reiterate OP; Reducing Target Price to $39 (from $41): We derive our target price through a three-stage distribution discount model ( DDM ). Our assumptions include a discount rate of 8.5%, distribution CAGR of 7.2% over the first five years and 3.0% over the following five years and a terminal growth rate of 1.5%.

Estimate Revisions: We are lowering our 2012/2013/2014 EPU estimates to $2.11/$2.19/$2.16 (from $2.26/$2.38/$2.29).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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