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Strong Buy on Delek Logistics

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On Aug 10, Zacks Investment Research upgraded Delek Logistics Partners, LP (DKL - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

This partnership focused on owning and operating midstream energy infrastructure delivered positive earnings surprises in two out of the last three quarters with an average beat of 9.40%. The long-term expected earnings growth rate for this stock is 11.0%.

Delek Logistics Partners’ earnings per unit in the second quarter were 47 cents, 2.2% higher than the Zacks Consensus Estimates. Higher volumes from Texas marketing operations and the SALA Gathering System boosted the performance of the partnership.

Having started its operations in Nov 2012, the partnership has plans to grow via an acquisition strategy in the next 18 months besides organic initiatives. Delek Logistics Partners has already completed a couple of acquisitions in Jul 2013, which are expected to add nearly $11.2 million to its annual EBITDA.

The partnership was able to expand its financial flexibility in the reported quarter by $175 million to $400 million. This will provide an impetus to its growth plans.

The strong performance also enables Delek Logistics Partners to reward its unitholders through regular distribution payments. The partnership’s current quarterly distribution rate of 39.5 cents reflects a 2.6% sequential increase from 38.5 cents distributed in the first quarter.

The present valuation also makes the partnership attractive. The forward P/E multiple of the partnership is 15.4%, a discount of 31.83% to the peer group average of 22.62%. The ROE of the partnership is 31.0%, which is substantially higher than the peer group average of 5.9%.  

The Zacks Consensus Estimate for 2013 has risen 5.9% in the last 7 days to $1.98 per unit, reflecting year-over-year growth of 475%. For 2014, the Zacks Consensus Estimate increased 4.6% in the past one week, reflecting year-over-year growth of 4.7%.

Besides Delek Logistics Partners, other operators in the sector having a favorable Zacks Rank are Magellan Midstream Partners LP (MMP - Free Report) , Pioneer Southwest Energy Partners L.P. and Rose Rock Midstream, L.P. . Magellan Midstream Partners currently retains a Zacks Rank #1 (Strong Buy) while Pioneer Southwest Energy and Rose Rock Midstream carry a Zacks Rank #2 (Buy).

In-Depth Zacks Research for the Tickers Above

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Magellan Midstream Partners, L.P. (MMP) - free report >>

Delek Logistics Partners, L.P. (DKL) - free report >>

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