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We reaffirm our Neutral recommendation on Texas-based, Buckeye Partners L.P. (BPL - Analyst Report). Buckeye Partners provided dull financial results in the second quarter 2012 with the top- and bottom-line falling short of the respective Zacks Consensus Estimates due mainly to soft performance at Energy Services.

Although in the past four quarters the partnership has consistently lagged expectations, we believe its proposed capital expenditures in the range of $275 million to $385 million for 2012 will enable Buckeye Partners to continue to actively pursue its organic growth and cost-reduction opportunities.

However, the possibility of Federal Energy Regulatory Commission (“FERC”) requiring the partnership to transition to a ratemaking methodology less favorable than the Buckeye methodology would adversely affect the partnership’s business. Along with that stringent environmental regulations could expose Buckeye Partners to increasing compliance costs, which will impact the partnership’s financials.

The partnership has been successful in enlarging its operations through periodic acquisition and equity investments. Buckeye Partners finalized the purchase of Perth Amboy from Chevron Corporation (CVX - Analyst Report) for $260 million which will provide easy access to domestic and international sourced petroleum as well as to customers in New York Harbor. Besides, the partnership completed initial storage expansion of 1.1 million barrels in its acquired BORCO facility. These significant infrastructural developments will propel Buckeye Partners’ growth engine in the near future.

Nonetheless, the partnership’s natural gas storage is influenced by commodity market risks owing to relative price instability over different delivery periods which could result in financial losses. In addition, factors that could adversely affect the partnership’s margins are changes in economic conditions, weather variations and unplanned pipeline outages.

On a positive note, disciplined financial strategy and healthy distribution rates would also help arrest investors’ confidences in the partnership’s stock. The distribution rate of Buckeye Partners stood at $1.0375 per unit, which reflects growth of 2.5% year over year.

The Zacks Consensus Estimates for the third quarter and full year 2012 presently stand at 74 cents per unit and $2.72 per unit, respectively. The partnership’s active competitor in the U.S. market is Oklahoma-based, The Williams Companies Inc. (WMB - Analyst Report).

Buckeye Partners is a publicly traded partnership that owns and operates one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered. The partnership’s existing market capitalization stand at $4.85 billion and it currently holds a Zacks #3 Rank (Hold rating).

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