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Bear of the Day: NuStar Energy (NS)

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Disappointing results and downbeat guidance have led to sharp downward estimates revisions, sending this energy stock to a Zacks Rank # 5 (Strong Sell).

About the Company

Structured as Master Limited Partnership (MLP), NuStar Energy (NS - Free Report) is one of the largest asphalt refiners and marketers and independent terminal and petroleum liquids pipeline operators in the country.

Headquartered in San Antonio, NuStar currently owns 8,491 miles of pipeline, 89 terminal and storage facilities, with operations in the US, Canada, UK, Mexico and the Netherlands.

The partnership has three operating segments, but about 96% of operating income comes from Storage and Pipeline segments

Disappointing Results and Guidance

NuStar  reported its first quarter 2013 results on April 24, 2013. Net income for the quarter came in at $13.3 million, or $0.17 per unit, compared to $16.0 million, or $0.23 per unit, in the prior-year quarter.

The management provided downbeat guidance for the second quarter mainly due to weak results in the asphalt joint venture.

Downwards Revisions

Due to disappointing results and downbeat guidance, quarterly and annual estimates have been revised sharply downwards in the past few weeks by analysts.

Zacks consensus estimate for the current quarter now stands at $0.33 per share versus $0.52 per share, 60 days ago, while the full-year consensus estimate is $1.75 per share now, down from $2.09 per share.

The Bottom Line

Though the company is trying to minimize its reliance on margin-based operations and increase it fee-based operations; our near-term concerns relate to the slowdown in demand for refined products and as well as cost overruns on expansion projects. Further, NuStar’s exposure to asphalt business exposes it to volatility in commodity prices.

NS is currently Zacks Rank # 5 (Strong Sell) stock and it has a longer-term recommendation of “Neutral”, thus we think investors should avoid this stock for the time being.

Better Play

Investors looking for exposure to the industry could look at Delek Logistics Partners (DLK) or Summit Midstream Partners (SMLP); both are Zacks rank#1 (Strong Buy) stocks and also have longer-term Zacks recommendation of “Outperform”. 

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