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Here's Why You Should Buy Shell Midstream Partners Right Now

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On Sep 19, Shell Midstream Partners LP has been raised to a Zacks Rank #1 (Strong Buy), implying that the stock will significantly outperform the broader U.S. equity market over the next one to three months.

Why the Upgrade?

Over the past 60 days, the Zacks Consensus Estimate for the partnership’s third and fourth-quarter 2018 earnings has been revised upward from 38 cents to 41 cents. This enhances Shell Midstream Partners’ impressive earnings profile. Formed by Royal Dutch Shell plc , the partnership has surpassed the Zacks Consensus Estimate in the last four quarters, the average positive earnings surprise being 7.9%.

The partnership operates extensive midstream infrastructure that offers stable fee-based revenues. The pipelines of the partnership are being used by shippers for transporting oil, natural gas and refined petroleum products.

It is to be noted that increasing demand for clean energy is leading to higher investments in natural-gas fired power plants, replacing coal units in the United States. The move should support natural gas production in the domestic market.

Moreover, recovering crude prices are encouraging explorers to bump up oil production. However, the domestic shale plays, especially the Permian Basin, are currently facing pipeline capacity constraint to transport additional crude and natural gas volumes.

Hence, the rising need for fresh midstream infrastructures will continue to support the partnership to generate handsome operating cashflows. Through the first half of 2018, the partnership’s free cash flow increased 9%, followed by a 41.4% rise in 2017.  

Other Stocks to Consider

Other prospective players in the energy space are TC PipeLines LP and Petroleo Brasileiro S.A. or Petrobras (PBR - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TC PipeLines has an average positive earnings surprise of 3.7% for the last four quarters.

Petrobras’ bottom line beat the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 10.4%.

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