Distribution Growth Priced In: We are downgrading EPB to Neutral (from Outperform) on valuation. We are projecting decelerating distribution growth as EPB absorbs dropdowns from KMI. Our three-year CAGR of distributions is roughly 5.5%. While we believe upside remains over the next 12 months, in our opinion it is not enough to keep us at Outperform given its current level.
Minor Changes to Outlook: We made minor adjustments to our FY2013 outlook with DCF/unit falling by $0.04 to $2.71 while EBITDA drops just $4mm to $1.158B after entering actual operational data from the 10-K. Our estimates assume dropdown of the remaining 50% of the Gulf LNG asset from KMI at the end of 2Q:13.
Raising TP to $44 (from $43): Despite our rating downgrade, we are raising our TP by $1 to $44 as we believe EPB will trade at a slight premium to the AMZX given its highly predictable cash flows and distribution growth largely in-line with the sector. Applying a combination of a target yield range 5.75%-6% in combination with a 3-stage DDM, and yield vs growth regression, we obtain a valuation range of $43-$45. Assuming $2.55 in distribution over the next 12 months, we expect total return of 9%-13% which is still solid but not enough to keep us at Outperform. We are revising our 2013/2014/2015 EPU estimates to $2.14/$2.05/$2.08 (from $2.13/$2.00/$1.93) respectively
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Copyright (C) 2016 MTNewswires.com. All rights reserved. Unauthorized reproduction is strictly prohibited.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
