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On Sep 18, Zacks Investment Research upgraded San Antonio, Texas-based publicly traded partnership NuStar Energy LP (NS - Analyst Report) to a Zacks Rank #3 (Hold).

Why the Upgrade?

The master limited partnership (MLP) is the second largest independent liquids terminal operator in the nation and is engaged in transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico and the U.K.

NuStar holds a diversified pipeline and storage folio and expects to benefit from its strong foothold in the Eagle Ford shale play.

Last month, the company closed its senior notes offering worth $300 million which are due to mature in Feb 2021. We consider this as a positive move as NuStar plans to use the proceeds to partly settle the outstanding debt which has risen to concerning levels.

Recently, NuStar had entered into a deal to buy bunker fuel for its customers in St. Eustatius and the Caribbean region. Its bunker fuel marketing operations have been affected by unfavorable market situations and lower demand during recent months. The contract will help the company to tide over this situation as it expects the deal to lower its price fluctuation exposure as well as significantly diminish its working capital cost by roughly $40–$50 million.

Prior to that, on Jul 26, NuStar had announced better-than-expected second-quarter 2013 earnings per unit (EPU) of 27 cents on the back of higher contribution from Pipeline and Fuels marketing businesses.

However, we believe these positives are already reflected in its current valuation, so there is not much upside from the current price level.

Moreover, apart from the inherent seasonality of the road construction business, we remain concerned about NuStar’s exposure to the asphalt business. This increases the partnership’s vulnerability due to volatile commodity prices and adds to its risk profile.

Stocks That Warrant a Look

We expect NuStar to perform in line with its peers and industry levels in the coming months and advise investors to wait for a better entry point before accumulating shares. Meanwhile, one can consider other energy pipelines and terminals operators like Magellan Midstream Partners LP (MMP - Analyst Report) and Pioneer Southwest Energy Partners L.P. which sport a Zacks Rank #1 (Strong Buy) or Delek Logistics Partners, LP (DKL - Snapshot Report) which currently holds a Zacks Rank #2 (Buy).

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