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We retain our Neutral recommendation on Buckeye Partners L.P. (BPL - Analyst Report). Currently, the petroleum products pipeline operator carries a Zacks Rank #3 (Hold).

Why the Reiteration?

Buckeye Partners reported strong earnings results in the first quarter of 2013 breezing past our expectation thanks to a robust business from its pipeline and terminal operations.

The reiteration, however, takes into account the uncertainty regarding the performance of its Energy Services segment which has generated weak revenues owing to market backwardation in its service areas. We believe this particular business will continue to pose challenges for Buckeye in the upcoming quarters.

Furthermore, the partnership’s operations are concentrated in areas which are highly exposed to harsh weather conditions. This can likely damage infrastructure and disrupt operations. An active hurricane season projected by the National Oceanic Atmospheric Administration in 2013 might put Buckeye’s deepwater operations in harm’s way.

Nevertheless, several key drivers like the tariff rate increase of 7% effective from May 1, 2013 and encouraging development of the Bahamas Oil Refining Company International Limited terminal will bode well for the partnership’s growth objectives.

Buckeye Partners also has various domestic projects lined up in the coming years which will boost its prospects. Chief among them is the Perth Amboy Terminal to Linden pipeline network that is expected to come online by Apr 2014. Moreover, increased drilling activities in the reserves-rich Marcellus and Utica basins will propel the partnership’s pipeline operations.

We however believe environmental regulatory pressures will keep a lid on Buckeye’s performance.

Other Stocks to Consider

Pipeline players presently looking good are Zacks Ranked #2 (Buy) Atlas Pipeline Partners, L.P. (APL - Snapshot Report), MarkWest Energy Partners, L.P. (MWE - Analyst Report) and Spectra Energy Partners, L.P. (SEP - Snapshot Report).

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