On Jun 12, Summit Midstream Partners, LPSMLP was upgraded to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
The midstream energy infrastructure company operates in five unconventional resource plays, namely the Appalachian Basin, Williston Basin, Fort Worth Basin, Piceance Basin and Denver-Julesburg (DJ) Basin. Its diversified presence within the United States gives the company an ability to earn attractive fee-based revenues. Moreover, the partnership is expected to largely benefit from growth projects in these basins. In the Utica shale formation, located in the Appalachian Basin, the partnership has two new Summit Midstream Utica pad connections, which are expected to come online in the beginning of 2019. Additionally, Summit Midstream has a 60 million cubic feet per day (MMcf/d) processing facility lined up in the DJ Basin, which will become operational in the fourth quarter of 2018.
Furthermore, the partnership has entered in the Delaware Basin, its sixth basin, with a project of 60 MMcf/d processing and gathering facility, where operations are commencing this quarter. The estimated project expenditure is $110 million. Another Double E Pipeline project is being planned by the partnership in this basin, which is lined up for 2021, having an estimated budget of $400-$450 million. These growth projects can help Summit Midstream in boosting its cash flow.
Summit Midstream's current debt-to-capitalization ratio of 44.8% is way below 52.3% recorded by the industry it belongs to. Additionally, the partnership has $949 million borrowing capacity available under its $1.25 billion revolving facility. These strengths in Summit Midstream's balance sheet can help it to execute the growth projects smoothly. Also, the partnership's total capital expenditure budget for 2018 lies in the range of $175-$225 million, which is expected to be utilized for further igniting the partnership's future earning abilities.
Zacks Consensus Estimate
For the second quarter of 2018, the partnership witnessed two upward revisions and no downward revisions, in the last 60 days. Earnings estimates for the current quarter have been revised upward from 14 cents per share to 16 cents per share, during this time.
Moreover, the leading growth-oriented master limited partnership has an impressive earnings surprise history, with the average positive earnings surprise being 94.3% in the trailing four quarters.
In terms of enterprise multiple or EV/EBITDA ratio - which is one of the best multiples for assessing oil and gas companies as energy firms usually have a large amount of debt - The Woodlands, TX-based partnership seems undervalued. The company currently has an average trailing 12-month EV/EBITDA ratio of 8.2, much lower than its industry 's figure of 13.2.
Other Stocks to Consider
Other top-ranked stocks in the oil and energy sector are Anadarko Petroleum Corporation APC , Delek US Holdings, Inc. DK and HollyFrontier Corporation HFC , each sporting a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .
The Woodlands, TX-based Anadarko is an exploration and production company. For 2018, its bottom line is likely to be up 239.3%. In the last reported quarter, the company delivered a positive earnings surprise of 20.1%.
Brentwood, TN-based Delek is an energy company. The company's top line for 2018 is anticipated to improve 39.2% year over year, while its bottom line is expected to increase 230.2%.
Dallas, TX-based HollyFrontier is an independent refining company. For 2018, its bottom line is likely to be up 145.3%. In the last four reported quarters, the company delivered an average positive earnings surprise of 41.3%.
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