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Buckeye Partners (BPL) Gains from Strategic Acquisitions

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On Nov 10, 2016, we issued an updated research report on Buckeye Partners, L.P. (BPL - Free Report) . Buckeye Partners has an attractive portfolio of refined petroleum product transportation and storage assets in key geographical markets. Strategic acquisitions and organic growth projects will drive the partnership’s performance in the domestic as well as international arena. However, stringent government regulations and natural calamities are persistent headwinds for Buckeye Partners.

Recently, Buckeye Partners declared third-quarter 2016 earnings of $1.19 per unit, surpassing the Zacks Consensus Estimate of 98 cents by 21.4%. The reported figure was also up from the year-ago tally of 78 cents. However, Buckeye Partners’ total revenue came in at $766.6 million, missing the Zacks Consensus Estimate of $800 million by 4.2%. Nevertheless, quarterly revenues were up 5.2% year over year owing to higher contribution from the Transportation, Storage and Other Services segments.

Buckeye Partners frequently acquires assets in a similar line of business as its own in order to focus on its core business. In October, the partnership signed an agreement to purchase a 50% equity interest in the holding company of VTTI Energy Partners LP for $1.15 billion.

Business conditions for storage remain promising for the partnership’s domestic and international assets. In the reported quarter, Buckeye Partners had 18 million barrels of storage capacity in service, up from 14 million barrels in the prior-year quarter.

However, Buckeye Partners’ operations are subject to stringent environmental laws, which expose it to increasing cost of operations and compliance costs. In addition, new pipelines being built by major integrated oil and gas companies could intensify competition in this space. Moreover, the partnership’s rate structures are subject to review and regulation by the FERC. Changes prescribed by the regulatory body could adversely affect the company’s top line.

In addition, Buckeye Partners’ infrastructure is exposed to the risk of damages caused by natural calamities. On account of the damage wrecked by Hurricane Matthew in October, Buckeye has to shell out $20–$30 million as operating and capital expenditure for restoring the infrastructure. This will negatively impact the partnership’s operating cash flows.

Zacks Rank & Key Picks

Buckeye Partners carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the Oils-Energy sector include Cloud Peak Energy Inc. (CLD - Free Report) , Hallador Energy Company (HNRG - Free Report) and Alliance Resource Partners, L.P (ARLP - Free Report) .

Cloud Peak Energy has seen one upward estimate revision over the last month for 2016. The stock sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Alliance Resource, another Zacks Rank #1 stock, has seen one upward estimate revision over the last month for the full year.

Hallador Energy has seen one upward estimate revision over the last month for 2016. The stock carries a Zacks Rank #2 (Buy).

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