We are maintaining our Neutral recommendation on NuStar Energy L.P. (NS) units with a target price of $62.
San Antonio, Texas-based NuStar Energy is a master limited partnership (“MLP”) engaged in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, the Netherlands and the U.K.
The partnership is one of the largest asphalt refiners and marketers in the U.S. and the second largest independent liquids terminal operator in the nation. NuStar’s current asset base includes 8,417 miles of pipelines, 82 terminal facilities, 4 crude oil storage tank facilities and 2 asphalt refineries with a combined throughput capacity of 104,000 barrels per day. The partnership’s combined system has more than 91 million barrels of storage capacity.
We like NuStar for its diversified asset base and robust distribution-growth prospects. A strong pipeline of organic growth projects and contribution from acquisitions provide the partnership with an above peer-group average distribution coverage ratio.
NuStar has established a track record of consistent distribution growth – its current quarterly distribution of $1.065 per unit ($4.26 per unit annualized) is up 113% since its initial public offering (IPO) in 2001.
Unlike traditional midstream MLPs, who are currently faced with relatively weaker throughput and transportation volumes, NuStar’s asphalt business provides a comparatively uncorrelated stream of earnings and cash flows.
However, we believe that these factors are already reflected in its current valuation and do not foresee much upside from this level. We also remain wary of the higher business risk associated with the partnership’s more volatile asphalt operations.
As such, we expect the long-term growth potential of the partnership to be restrained and expect the units to perform in line with the market.
NUSTAR ENERGY (NS): Free Stock Analysis Report
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