On Oct 9, 2013, Zacks Investment Research downgraded oil and gas pipeline operator Enbridge Energy Partners, L.P. (EEP - Analyst Report) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The partnership delivered a negative earnings surprise of 40.9% in the second quarter 2013. The long-term expected sales growth of Enbridge is set at a negative 2.77%.
The impact of the Cushing crude oil storage terminal outage, a low cash balance and rising natural gas and liquids inventory are acting as a growth deterrent for Enbridge Energy.
The partnership’s cash balance dwindled 88% to $27.3 million as of Jun 30, 2013 from $227.9 million as of Dec 31, 2012. The 2010 Michigan oil spill has also been weighing on Enbridge’s financials.
The high capital expenditure required for Enbridge’s ambitious growth plans over the next few quarters may reduce cash distribution growth.
The partnership was also slapped with charges in Jul 2013 by the Environmental Protection Agency for permit violations for the discharge of hydrotest water in 2010 related to the Alberta Clipper Pipeline.
In addition, Enbridge’s midstream natural gas business is likely to remain depressed in the upcoming quarters. The Energy Information Administration estimates a 5.5% decline in petroleum products prices in 2014 from 2012 which will affect Enbridge’s returns.
Other Stocks to Consider
However, all industry players are not doing as badly as Enbridge Energy Partners. Stocks presently looking attractive are Zacks Ranked #2 (Buy) Energy Transfer Partners, L.P. (ETP), Kinder Morgan Energy Partners, L.P. (KMP - Analyst Report) and Magellan Midstream Partners L.P. (MMP - Analyst Report).