On May 16, 2013, we upgraded our recommendation on PVR Partners L.P. ( PVR ) to Neutral from Underperform. The partnership currently has a Zacks Rank #3 (Hold).
Why the Upgrade?
There are several growth factors, including PVR Partners' favorable performance in first-quarter 2013, steady projects pipeline, and operational efficiency, which led to the improvement of the stock.
In first-quarter 2013, PVR Partners' both top as well as bottom line surpassed the Zacks Consensus Estimates on strong contribution from the natural gas business, and improvement in collection of trunkline and gathering fees.
During first-quarter, PVR Partners invested $90.1 million primarily to expand coverage in Marcellus Shale, Panhandle and Crescent systems. Further, setting up of new pipelines, and extension and improvement of the existing ones will enable the partnership to strengthen its presence in the region and serve more customers.
PVR Partners recently acquired the membership interests of Chief Gathering. This transaction will allow the partnership to capture significant opportunities from the productive counties in the northeastern area of the Marcellus Shale. We believe this transaction will subsequently help PVR Partners to become a leader in the midstream business with significant assets in both the Marcellus Shale and the Granite Wash.
PVR Partners is gradually converting itself from a coal royalty business to the midstream natural gas business. We consider this initiative as a positive move for the partnership's forthcoming performance. This step will help PVR Partners to diversify its portfolio along with steady profitability.
However, we are apprehensive about PVR Partners' over-reliance on a limited group of customers and greater dependence on third party service-providers for receiving and supplying natural gas and natural gas liquids to its customers.
Other Stocks to Consider
Apart from PVR Partners, other companies from the industry such as Atlas Energy, L.P ( ATLS ), EQT Midstream Partners, LP ( EQM ) and Pembina Pipeline Corporation ( PBA ) are currently performing well and carry a Zacks Rank #1 (Strong Buy).
Radnor, PA-based PVR Partners owns and operates a string of natural gas midstream pipeline systems and processing plants and is also involved in the management of coal as well as natural gas properties.