Energy Transfer Slips to Sell - Analyst Blog

On Jul 13, Zacks Investment Research downgraded natural gas pipeline operator, Energy Transfer Partners LP (ETP), to a Zacks Rank #4 (Sell).

Why the Downgrade?

The operating environment and growth prospects seem weak for Energy Transfer, as reflected by the decreasing earnings estimates for the partnership. Over the last 60 days, the Zacks Consensus Estimate for the second quarter of 2013 fell 7.7% to 48 cents per unit. For 2013, the Zacks Consensus Estimate reduced 4.9% over the same timeframe to $2.11 per units.

Moreover, Energy Transfer delivered negative earnings surprises in 2 of the last 4 quarters with an average miss of 11.9%.

Though Energy Transfer pays a healthy distribution yield of 6.8%, the partnership has not improved its payout since 2008. The lack of distribution increase has been a major impediment to a breakout in Energy Transfer Partners' unit price.

Furthermore, unfavorable regulatory changes by the Federal Energy Regulatory Commission (FERC) would impact the partnership's results. This will also contribute toward increasing Energy Transfer's borrowing costs and depressing the market value of its limited partner units.

Additionally, we believe that the near- to medium-term outlook for the partnership's natural gas gathering and processing business continues to be weak, which remains a major liability in our view.

Stocks to Consider

Not all oil and gas pipeline master limited partnerships are performing as poorly as Energy Transfer. The stocks of Delek Logistics Partners LP (DKL), Enbridge Energy Management LLC (EEQ) and Kinder Morgan Management LLC (KMR) are worth considering. Delek Logistics carries a Zacks Rank #1 (Strong Buy), while Enbridge Energy and Kinder Morgan retain a Zacks Rank #2 (Buy).