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Holly Energy Partners, L.P. (HEP - Snapshot Report) continues to offer investors strong growth and very attractive income at a reasonable price.
The partnership delivered record results for the fourth quarter, prompting analysts to revise their estimates significantly higher. It is a Zacks #2 Rank (Buy).
And Holly raised its quarterly distribution for the 29th consecutive time earlier this year. It currently yields 6.0%.
Master Limited Partnership
Holly Energy Partners is a master limited partnership (MLP) that operates petroleum product and crude oil pipelines, storage tanks, distribution terminals, and loading rack facilities. As an MLP, it must distribute at least 90% of its income to unitholders to avoid taxation on that money.
It is headquartered in Dallas, Texas and has a market cap of $1.6 billion.
Fourth Quarter Results
Holly Energy delivered record financial results for the fourth quarter on February 16. Earnings per unit came in at 97 cents, crushing the Zacks Consensus Estimate of 67 cents. It was a stellar 43% increase over the same quarter in 2010.
Revenue rose 39% to $68.3 million, well ahead of the Zacks Consensus Estimate of $55.0 million. This was driven in part by an acquisition in November. But overall pipeline volumes were up 19% as the refineries utilizing its pipeline systems continued to operate at consistent levels throughout the quarter.
And distributable cash flow was up 33% over the same period last year to reach a record $32.4 million.
Analysts raised their estimates significantly higher for both 2012 and 2013 following strong Q4 results, sending the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2012 is now $3.22, representing 20% growth over 2011 EPU. The 2013 consensus estimate is 5% higher at $3.37.
Holly Energy announced its 29th consecutive distribution increase earlier this year, raising its quarterly distribution from $0.875 to $0.885.
It currently yields a juicy 6.0%.
Shares of HEP are up 22% since I last wrote about it on August 8. But valuation still looks reasonable.
Shares trade at 18x 12-month forward earnings, a discount to the industry median of 20x and its 10-year median of 19x.
The Bottom Line
With both earnings estimates and the quarterly distribution still rising, Holly Energy Partners still offers investors a lot to like.
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Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.