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On Sep 30, 2013, we maintained our Neutral recommendation on Buckeye Partners L.P. (BPL - Analyst Report). The Houston-based independent petroleum products pipeline operator carries a Zacks Rank #3 (Hold).

Why the Reiteration?

Buckeye Partners delivered year-over-year earnings increase in the second quarter 2013. The outperformance stemmed from its strong pipeline and terminal business as well as international operations.

The reiteration, however, takes into account the partnership’s exposure to fluctuations in petroleum product and diesel prices. In addition, a significant portion of Buckeye Partners’ operations are located in areas affected by severe weather conditions which might pose serious operational challenges.

Buckeye Partners will derive substantial benefits from its multiple ventures that have already attracted several long-term customers. The partnership’s ongoing Perth Amboy Terminal project scored a contract with a New York gasoline blender for storage services having a capacity of 1 million barrels. Also, its Chicago propylene storage facility booked two back-to-back crude oil service contracts.

The implementation of positive tariff rate changes effective Jul 1, 2013, will drive the partnership’s top-line. In addition, a healthy liquidity position will help fund Buckeye Partners’ future investments. The partnership’s quarterly distribution rate increase of 52.6% to $1.0625 per unit will undoubtedly retain investors’ attention to the stock.

Nevertheless, Buckeye Partners’ operations are subject to stringent environmental laws which expose it to increasing operation and compliance costs.

Other Stocks to Consider

Pipeline industry players looking good at the moment are Zacks Ranked #2 (Buy) Magellan Midstream Partners L.P. (MMP - Analyst Report), Pioneer Southwest Energy Partners L.P. and Sunoco Logistics Partners L.P. (SXL - Analyst Report).

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