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Analyst Blog

On Dec 16, 2013, we have reiterated our Neutral recommendation on the independent pipeline operator Buckeye Partners L.P. (BPL - Analyst Report). The partnership currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

The reiteration was primarily backed by the partnership’s unfavorable performance in the third quarter of 2013 and over-dependence on commodity prices. These negatives were partially offset by the completion of proposed acquisition and steady progress of other inorganic projects.

In third-quarter 2013, Buckeye Partners’ operating earnings missed the Zacks Consensus Estimate by 12.2%. Quarterly earnings also decreased 17.2% year over year due to higher total costs and expenses and a rise in total outstanding units.

The partnership’s business is strongly influenced by commodity price movements. Buckeye Partners receives a significant part of its revenues as payment for gathering, transportation and storage services. A decline in prices of petroleum products may result in reduced payments for these services, thus significantly impacting future cash flow.

On the positive side, Buckeye Partners recently acquired 20 liquid petroleum products terminals from Hess Corp. (HES - Analyst Report) for $850 million. The transaction enables the partnership to increase its total storage capacity and integrate its existing assets with the acquired networks.

On Sep 2013, Buckeye Partners completed yet another phase of expansion at its Bahamas Oil Refining Company International Limited (“BORCO”) assets while adding extra crude storage capacity into the facility.

We believe the scheduled completion of both inorganic as well as organic growth programs will help the partnership to serve more upstream players, thereby improving its financial performance.

Other Stocks to Consider

Other better-ranked stocks in the sector that are currently performing well include Abraxas Petroleum Corp. (AXAS - Snapshot Report) with a Zacks Rank #1 (Strong Buy) and Magellan Midstream Partners LP (MMP - Analyst Report) with a Zacks Rank #2 (Buy).

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