We are downgrading NuStar (NS) units to Underperform from Neutral, reflecting the challenging business environment for pipeline operators. While the partnership’s liquidity position is sound, we continue to believe that the near- to medium-term outlook for petroleum products expenditure remains weak.
Another concern for NuStar is the weak demand for refined products that translates into lower pipeline throughputs. Furthermore, the addition of the asphalt business has increased the partnership s exposure to volatility in commodity prices.
Given these headwinds, we expect NuStar units to be under pressure in the near future. Our $56 price objective reflects a target yield of 7.85%, with a distribution run rate of $4.43 per unit (a 4% increase from the current level).Zacks Investment Research