Hold Buckeye Partners' Volatility

We are maintaining our Hold recommendation and price objective on Buckeye Partners (BPL - Snapshot Report) units as we continue to believe that current valuation adequately reflects Buckeye's middling growth prospects. The partnership's recent quarterly results were on the weaker side, reflecting lower-than-expected volumes and an increase in number of LP units.

However, the partnership's revenue was up significantly, buoyed by contributions from the Lodi Gas Storage and Farm & Home acquisitions. Importantly, the partnership raised its quarterly distribution by 1.5% sequentially to the annualized run rate of $3.40 per unit.

On a distribution yield basis, BPL common units are currently trading at a modest premium to the peer pipeline MLP group average (lower yield = higher value). This represents a 307 basis points spread over the 10-year Treasury bond, compared to the peer group's average spread of 326 basis points.

Our unchanged target price of $47 reflects a 6% distribution growth to $3.60 per unit over the next twelve months and a target yield of 7.60%. Our yield assumption is based on a 310 basis point spread over our 10-year Treasury bond yield expectation of 4.50%.

Read the full analyst report on BPL