Zacks energy sector analyst Sheraz A. Mian is upgrading the shares of oil refining and marketing company Energy Transfer Partners, L.P. (ETP) from Hold to Buy. Here are some of the reasons behind his decision:
'We are upgrading Energy Transfer common units to Buy from Hold following their roughly 17% pullback since mid-July in the wake of the broader credit market weakness. Given the partnership's diversified business mix and best-in-class distribution growth track record, we view the current pullback as an attractive entry point in a quality master limited partnership (MLP).
'We are revisiting our recommendations in this space following recent developments on the credit-market and monetary policy fronts. While the initial weakness in the MLP space in response to credit-market concerns was largely in-line with the broader equity markets, the two diverged following the Fed's rate cut.
'A key contributing factor for this divergence is the group's heavy exposure to external financing to fund growth projects and acquisitions. As such, restricted access to capital, both debt as well as equity, would be a major headwind for the group as a whole. While the concerns are genuine and may remain with us for some time, we doubt the extent of the access to capital problem.
'Given the partnership's diversified business mix and best-in-class distribution growth track record, we view the current pullback as an attractive entry point in a quality MLP. This explains our upgrade to Buy. Our unchanged price objective of $61 reflects a distribution run rate of $3.63 per unit, a 10% increase from the current level, and yield of 6%, reflecting a 100 bps spread over our new 10-year Treasury bond yield expectation of 5% over the next 12 months.'
Read the full analyst report on ETP.
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