We are maintaining our Neutral recommendation on MarkWest Energy Partners, L.P. (MWE).
MarkWest Energy is a master limited partnership, involved in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids, and the gathering and transportation of crude oil.
Last month, the partnership reported weak fourth quarter results with adjusted loss per unit of 5 cents, as against earnings of 75 cents per unit in the prior-year quarter. MarkWest Energy experienced natural gas liquid sales in Northeast and East Texas regions.
The current economic downturn coupled with restricted access to credit markets, have compelled consumers and businesses to cut down on transportation fuels such as gasoline. This translates into less transportation volumes for the partnership, resulting in less profitability.
Moreover, as a firm operating within the energy sector, MarkWest Energy remains highly sensitive to the volatile oil and natural gas scenario and commodity price weakness. We are apprehensive that unstable energy prices might adversely affect the partnership’s cash flow stability.
However, counterbalancing these negative aspects are MarkWest Energy’s high-quality and diversified array of midstream assets, capable of generating stable and recurring revenues from long-term fee-based contracts. The partnership also possesses a large acreage in the fertile Marcellus Shale in western Pennsylvania and West Virginia.
Additionally, Mariner Project, the alliance between MarkWest Energy and Sunoco Logistics Partners L.P. (SXL) is targeted at building a distribution system to transport ethane produced in the Marcellus Shale Basin to markets along the Gulf Coast.
In our opinion, this initiative will help MarkWest to profit from the direct opportunity of capturing demand for ethane takeaway capacity at Marcellus as well as support higher gathering system volumes and ethane production.
Another positive move on the part of management has been the recent 1.6% year-over-year and sequential hike in the quarterly distribution to 65 cents per unit or $2.60 per unit annualized. We appreciate MarkWest Energy consistent efforts in improve the shareholders’ value.
Considering these factors, we expect the partnership to perform in line with its peers and the industry in the coming months. MarkWest Energy currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
MARKWEST EGY PT (MWE): Free Stock Analysis Report
SUNOCO LOGISTIC (SXL): Free Stock Analysis Report
Zacks Investment Research
