Genesis Energy L.P. - Growth & Income
October 01 2012 - 8:00PM
Zacks
With a juicy distribution yield of 5.5%, a business model focused
on operational efficiencies and attractive acquisitions/growth
projects,
Genesis Energy L.P. (GEL) provides investors with
a steady, predictable income stream. In addition, this Zacks #1
Rank (Strong Buy) diversified midstream energy operator has raised
its quarterly payout 28 times in a row.
On top of this, earnings growth is expected to be strong in 2012
and 2013, based on the solid fixed margin businesses and limited
commodity price exposure.
Acquisitions Drive Margin, DCF
Genesis Energy reported second quarter 2012 earnings per unit of
23 cents on August 2, lagging the Zacks Consensus Estimate of 24
cents and last year's profit of 27 cents. The results were pulled
down primarily by longer-than-expected planned turnaround outages
at some large refinery service locations.
However, total segment margin for the three months ended June 30
rose 32% year over year to $62.8 million. This was due largely to
higher crude oil tariff revenues and the acquisition of interests
in Gulf of Mexico oil pipelines from Marathon Oil Corp. (MRO) in
January. Results were further helped by the purchase of a black oil
barge transportation business in August 2011, and higher traffic
handled by Genesis Energy’s enlarged trucking and barge fleets.
More importantly, distributable cash flow (DCF) – an indicator
of cash paid for distribution to unitholders – escalated
approximately 35% year over year to a record $43.2 million,
providing a healthy 1.18x distribution coverage.
Consistent History of Increasing Distributions
Genesis Energy has established a track record of consistent
distribution growth. On July 9, the partnership raised its second
quarter 2012 cash distribution to 46 cents per unit ($1.84 per unit
annualized), representing an increase of approximately 2.2%
sequentially and 10.8% year over year. Importantly, the latest
payout marks the 28th consecutive quarterly distribution hike by
the pipeline operator, of which 23 increases have been 10% or more
year over year.
Genesis Energy’s announced distribution boost is in sync with
its goal of delivering disciplined growth to unitholders. The
partnership boasts of a consistent and improving financial policy
with high distribution coverage.
High-Teens Earnings Growth Prospect
Based on a solid expected performance from all the partnership’s
segments, analysts are predicting strong earnings growth for
Genesis Energy over the next couple of years. The 2012 Zacks
Consensus Estimate is $1.13, representing 17% earnings per unit
growth over 2011. Next year’s average forecast is $1.33,
corresponding with 18% growth.
Valuation Picture
Valuation looks reasonable for Genesis Energy. The stock is
going for about 29.8 times forward estimates, a 42% discount to the
peer group average of 51.7x. Its price-to-sales (P/S) ratio of 0.8
is essentially in-line with what similar firms offer.
Market Performance & Technicals
Since late-December, Genesis Energy stock has maintained
momentum above its 200 day moving average, which currently stands
at $29.64 against the current unit price of $33.63. Following the
latest distribution increase announcement in early July, units
started trading above its 50 day moving average as well. On the
performance front, Genesis Energy’s unit price has outperformed the
S&P 500 year-to-date and has delivered a return of around 20%
during the period, versus just 15% for the benchmark. The upside
momentum is likely to persist on the back of expected higher
payouts.
Genesis Energy’s success in executing accretive acquisitions
will continue to drive distribution growth to common
unitholders.
Houston, Texas-based Genesis Energy is a master limited
partnership that operates crude oil pipelines and is an independent
gatherer and marketer of crude oil in North America, with
operations concentrated in Texas, Louisiana, Alabama, Florida,
Mississippi and New Mexico. Genesis Energy engages in three
business segments: Pipeline Transportation, Refinery Services, and
Supply and Logistics.
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