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Analyst Blog

On January 9, 2013, Buckeye Partners L.P. ‘s recommendation was upgraded to Neutral from Underperform on the back of increased returns from the partnership’s organic as well as inorganic development projects. Buckeye Partners, which is engaged in pipeline systems business, retained its Zacks Rank #3 (Hold) after posting mixed financial outcomes in the third quarter 2012.

Why the Upgrade?

The partnership’s third quarter 2012 earnings stood at 87 cents, comfortably beating the Zacks Consensus Estimate of 73 cents as well as the year ago figure by 36%.

Following the third quarter results, the Zacks Consensus Estimate for the fourth quarter 2012 reflected a sharp increase of 28.13% year over year to 82 cents. The Zacks Consensus Estimate for the first quarter 2013 treaded the same path, surging 42.06% year over year to 77 cents. Similarly, earnings projection for 2013 also moved up markedly by 20.63% to $3.38 per unit.

Furthermore, the partnership’s solid cash flow generation during the third quarter is expected to invite favourable investment prospects in the future. Moreover, Buckeye’s consistent cash distribution pay-out of $1.0375 per unit will add value to the partnership’s unitholders.

We believe the partnership’s Bahamas Oil Refining Company International Limited ("BORCO") facility and Perth Amboy unit will contine to add to near-term top-line growth. BORCO’s contribution to the revenue increased 9.8% year over year, driving solid results. This stemmed from the 1.1 million barrels of supplementary storage, which became operational during the quarter.

Additionally, the acquisition of the 20% stake in the Wespac Pipeline-Memphis LLC will further accentuate returns in the long term.

Other Stocks to Consider

Apart from Buckeye Partners, other stocks in the oil and gas pipeline sector that are currently performing well include Boardwalk Pipeline Partners, L.P. and Plains All American Pipeline, L.P. .  Boardwalk Pipeline holds a Zacks Rank #1 (Strong Buy) while Plains All American  retains a Zacks Rank #3 (Hold).

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