Back to top

Analyst Blog

On Jul 12, 2013, we downgraded San Antonio-based publicly traded partnership NuStar Energy L.P. (NS - Analyst Report) to Underperform from Neutral. Our new investment thesis is supported by a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Though we welcome the partnership’s 50% stake sale in its volatile asphalt operations, NuStar’s high debt levels and exposure to volatile commodity prices will be a drag on its near to medium term outlook. We are also concerned by the inherent seasonality of the road construction business.

Detailed Analysis

NuStar’s exposure to asphalt business exposes it to volatility in commodity prices. Coupled with the inherent seasonality of the road construction business, this increases the partnership’s risk profile. As such, NuStar – that was spun off from the U.S. refiner Valero Energy Corp. (VLO - Analyst Report) in 2006 – is not a pristine midstream master limited partnership (MLP) focused entirely on fee-based and relatively low risk infrastructure assets.

Over the last few years, NuStar has consolidated its business through a combination of organic efforts and accretive acquisitions. We believe the higher operating expenses associated with this expanded asset base may lead to reduced returns going forward.

A key risk to our recommendation remains the outlook for petroleum products expenditure. We expect lower customer spending on fuels such as gasoline, aviation fuel and diesel (on the back of commodity-price and credit market weakness), which would lead to less transportation volumes for pipeline operators.

Finally, we remain concerned about NuStar’s high debt levels, which leave the partnership vulnerable to an extended downturn. As of Mar 31, 2013, NuStar had debt (including current portion) of $2.4 billion, representing a debt-to-capitalization ratio of around 49%.

Stocks That Warrant a Look

While we expect NuStar to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock, one can look at Delek Logistics Partners L.P. (DKL - Snapshot Report) and Rose Rock Midstream L.P. (RRMS - Snapshot Report) as good buying opportunities. These energy pipeline partnerships – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.00 +3.09%
SANCHEZ ENE… SN 34.18 +2.67%
THE PANTRY… PTRY 21.02 +2.09%
INTEL CP INTC 35.15 +1.88%
PIPER JAFFR… PJC 54.54 +1.70%