Penn Va Target Down, Buy Kept

We are maintaining our Buy recommendation on Penn Virginia Resource Partners, L.P. (PVR - Snapshot Report), a master limited partnership engaged primarily in coal-royalty leasing activities and gathering and processing natural gas.

However, we are decreasing our target price from $28 per unit to $25 per unit. With the partnership’s aggressive capital spending behind them, it will be able to realize increased cash flow while maintaining a low '09 budget.

Because of this, PVR will most likely not need to tap its revolving credit facility or the equity markets as internally generated cash from solid '09 per ton royalties and increased gas throughput volumes will support distribution growth and cover its capital expenses, which will be conservative relative to 2008.

Concerns about the credit markets, the economy and a severe pullback in commodity prices have caused a wide spanning pullback across the energy sector. As a result MLP players have seen their distribution yields widen and unit prices fall. Because MLPs distribute the vast majority of quarterly operating cash flows to its partners, in order to maintain growth it must frequently rely on equity and debt markets to finance a portion of its capital budget.

Investors may be skeptical of these stocks as credit markets are uninviting to companies of even the highest credit quality. However due to the efforts of the Central Bank and the Treasury department to aid in the infusion and flow of capital into financial companies, lending environments will most likely be back to normal in 2009. This should help MLPs trade closer to their historical distribution yields.

Read the full analyst report on PVR

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