Crestwood Equity Partners LP ( CEQP Quick Quote CEQP - Free Report) is well poised for growth on the back of an extensive network of pipelines due to increasing upstream activities. However, its high debt burden continues to be a concern.
Headquartered in Houston, TX, Crestwood is primarily involved in providing infrastructure solutions in major U.S. shale plays like the Bakken Shale, Delaware Basin, Powder River Basin, Marcellus Shale and others. With a market cap of $1.9 billion, the partnership is engaged in creating long-term value for unitholders.
The partnership’s bottom line for 2021 is expected to surge 144.7% year over year to 71 cents per share. The bottom-line estimate has witnessed four upward estimate revisions and no downward movement in the past 60 days. Moreover, the top line is expected to rise 50% year over year to $3.4 billion in 2021.
Let’s take a closer look at the factors that substantiate its Zacks Rank #3 (Hold).
What’s Favoring the Stock?
Crestwood has an extensive network of pipeline that spreads across 1,948 miles, which is used for gathering and processing purposes. Importantly, its 2.9 billion cubic feet of natural gas per day (Bcf/d) of gathering and 1.2 Bcf/d of processing capacity will be extensively used as the drive toward low-emission energy deepens. Moreover, its 150 thousand barrels of crude oil per day (MBbls/d) gathering capacity will help the partnership generate incremental cash flows. Of the 2021 estimated cash flow, 72% is expected to come from gathering and processing activities.
Markedly, the partnership estimates free cash flow after paying distributions within $90-$160 million. This amount will be used for reducing debt burden and increasing financial flexibility. Crestwood expects to generate 58% of cash flow from natural gas-related activities, while crude oil and natural gas liquids (NGLs) will yield 22% and 20%, respectively. The company favorably renegotiated its midstream contracts as the overall energy environment outlook is encouraging.
The partnership’s massive storage capacity of 76 Bcf of natural gas, 1.6 million barrels (MMBbls) of crude oil and 1.6 MMBbls of NGLs is appreciable. Its footprint in Barnett Shale, Bakken Shale, Delaware Basin, Marcellus Shale and other regions will ensure high utilization of the storage capacity. Importantly, the storage and transportation business is expected to significantly boost 2021 adjusted EBITDA to the $550-$610 million level, the upper limit of which is greater than the 2020 figure of $580.3 million.
With an encouraging energy and economic outlook, the partnership has allotted $35-$45 million capital for growth purposes. The majority of the capital will be allotted to the Arrow crude, natural gas and water gathering systems. Moreover, Delaware and Powder River Basins will receive significant capital spending. Notably, it expects maintenance capital in the range of $20-$25 million for 2021 to keep asset integrity intact.
Hurdles in Growth Path
However, there are certain factors that are worrisome.
The partnership expects 2021 distributable cash flow available for common unitholders in the range of $320-$380 million, whose mid-point is below the 2020 realized level of $361.2 million. Even though the overall energy environment in the United States is expected to significantly recover this year, low distributable cash flow estimates are concerning.
As of Dec 31, 2020, the partnership had only $14 million in cash and a total debt of $2,484 million, with a long-term debt to capitalization of 54.3%. The huge debt burden can affect its financial flexibility.
To Sum Up
Despite significant prospects, Crestwood’s high debt and lower distributable cash flow are concerning. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked players in the energy space include
DCP Midstream, LP ( DCP Quick Quote DCP - Free Report) , Frank's International N.V. ( FI Quick Quote FI - Free Report) and Pembina Pipeline Corporation ( PBA Quick Quote PBA - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
DCP Midstream’s bottom line for 2021 is expected to jump 45.3% year over year.
Frank's International’s bottom line for 2021 is expected to rise 46.7% year over year.
Pembina Pipeline’s bottom line for 2021 is expected to increase 29.3% year over year.
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