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On Apr 9, Zacks Investment Research upgraded San Antonio-based publicly traded partnership NuStar Energy L.P. (NS - Analyst Report) to a Zacks Rank #2 (Buy).

Why the Upgrade?

NuStar – that was spun off from the U.S. refiner Valero Energy Corp. (VLO - Analyst Report) in 2006 – boasts of a diversified asset base and robust distribution-growth prospects. A strong pipeline of organic growth projects and contribution from acquisitions provide the partnership with an above peer-group average distribution coverage ratio.

Detailed Analysis

NuStar has a track record for consistent distribution growth – its current quarterly distribution of $1.095 per unit ($4.38 per unit annualized) is up approximately 120% over its distribution rate at the time of its IPO in 2001.

Furthermore, the majority of NuStar’s business is derived from an attractive set of fee-based storage and transportation assets that support the U.S. and international energy infrastructure.

Over the last few years, the partnership has consolidated its business through a combination of organic efforts and accretive acquisitions. NuStar’s recently formed asphalt joint-venture partnership with a private investment firm is also a welcome move, aimed at reducing the pipeline operator’s unpredictability about its future cash flows, while trimming the requirement for large working capital investment.

Financially, NuStar remains in robust health with a strong balance sheet, improving credit metrics and a favorable debt maturity profile.

Based on the success of the partnership’s operations – particularly in the booming Eagle Ford shale region – analysts are predicting strong earnings growth for NuStar over 2013 and 2014. The 2013 Zacks Consensus Estimate of $2.15 represents earnings per unit growth of a whopping 194% over 2012. The Zacks Consensus Estimate for next year is $2.99, corresponding with an impressive 39% growth.

Other Stocks to Consider

In addition to NuStar, there are certain other energy pipeline partnerships like Delek Logistics Partners L.P. (DKL - Snapshot Report) and Summit Midstream Partners L.P. (SMLP - Snapshot Report) that offer value and are worth buying now. Both these firms sport a Zacks Rank #2 (Buy).
 

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