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On Sep 19, 2013, we have reiterated our Neutral recommendation on PVR Partners, L.P. . The partnership currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

In the second quarter of 2013, PVR Partners reported earnings of 5 cents per unit, missing the Zacks Consensus Estimate by 8 cents due to a rise in interest expenses and higher units outstanding. The partnership’s quarterly revenues were $273.5 million, beating the Zacks Consensus Estimate by $11.5 million. A year-over-year increase of 22.7% in revenues was primarily driven by strong contribution from the natural gas business, and higher collection of trunkline and gathering fees.

We appreciate PVR Partners’ effort towards expanding its operations through organic and inorganic route, along with getting long-term service commitments from the petroleum companies. Recently, the partnership has entered into an agreement with Hess Corporation (HES - Analyst Report) to provide trunkline and gathering as well as compression services. PVR Partners is continuously investing sizeable amounts to strengthen its presence in the region, which will help to get more contracts from the oil and gas companies, going forward.

However, PVR Partners’ over-dependence on a limited group of customers for its natural gas midstream and coal royalty revenues is a threat for its future performance. If any of these customers become insolvent or fail to keep their commitments, the partnership’s financial results will be affected.

PVR Partners is also witnessing challenges from third-party service providers in terms of receiving and supplying gas and natural gas liquids. We note that the capacities of the interconnecting pipelines sometimes get affected due to pipeline testing and repairing, and reduction in operating pressure, thus restricting future revenues.

Other Stocks to Consider

The other stocks in the industry that are worth considering include Oiltanking Partners L.P. (OILT - Snapshot Report) with a Zacks Rank #1 (Strong Buy), and SemGroup Corp. (SEMG - Snapshot Report) with a Zacks Rank #2 (Buy).

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