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2 Reasons Why Phillips 66 Partners (PSXP) is a Buy Right Now
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We are upbeat about Phillips 66 Partners LP’s prospects and believe it is a promising pick at the moment.
The company currently carries a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities.
Let’s delve deeper to analyze the factors that are working in favor of this midstream energy player.
Stable Fee-Based Model
Phillips 66 Partners is least exposed to fluctuations in commodity prices since it generates stable fee-based revenues under long-term contracts from diverse midstream energy assets across the Gulf Coast, Central, Western and Atlantic areas of the United States. Thus, by providing transportation services to third parties and Phillips 66 (PSX - Free Report) , the master limited partnership’s (MLP) cashflow is highly stable and predictable.
In other words, safe and reliable operations have helped the partnership consistently boost distributable cash flow (DCF) over the years. From just $128 million of DCF in 2014, the partnership managed to raise it to $854 million in 2018. Moreover, Phillips 66 Partners’ quarterly distribution per common unit saw a compound annual growth rate of 30% from fourth-quarter 2013 to fourth-quarter 2018.
Backlog of Organic Growth Projects
Rising production of crude oil, natural gas and natural gas liquids in the United States has created a need for fresh midstream assets. The partnership, with a strong backlog of organic growth projects, is well positioned to capitalize on the growing need for midstream infrastructure.
Among organic projects, the Gray Oak Pipeline system is a notable one. Gray Oak is likely to partly solve the pipeline bottleneck problem in the prolific Permian basin. The pipeline network, expected to be operational by the December quarter of 2019, will transport oil to the key Texas Gulf Coast markets from Permian and Eagle Ford at a rate of 900,000 barrels per day (B/D). It is to be noted that the partnership has a 42.25% ownership stake in the Gray Oak.
The backlog of organic growth projects will help the partnership keep boosting its DCF and quarterly distributions.
Antero Resources is likely to see earnings growth of 20% in the next five years.
NGL Energy is likely to witness earnings growth of 227% for the fiscal year ending March 2019.
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This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
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2 Reasons Why Phillips 66 Partners (PSXP) is a Buy Right Now
We are upbeat about Phillips 66 Partners LP’s prospects and believe it is a promising pick at the moment.
The company currently carries a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities.
Let’s delve deeper to analyze the factors that are working in favor of this midstream energy player.
Stable Fee-Based Model
Phillips 66 Partners is least exposed to fluctuations in commodity prices since it generates stable fee-based revenues under long-term contracts from diverse midstream energy assets across the Gulf Coast, Central, Western and Atlantic areas of the United States. Thus, by providing transportation services to third parties and Phillips 66 (PSX - Free Report) , the master limited partnership’s (MLP) cashflow is highly stable and predictable.
In other words, safe and reliable operations have helped the partnership consistently boost distributable cash flow (DCF) over the years. From just $128 million of DCF in 2014, the partnership managed to raise it to $854 million in 2018. Moreover, Phillips 66 Partners’ quarterly distribution per common unit saw a compound annual growth rate of 30% from fourth-quarter 2013 to fourth-quarter 2018.
Backlog of Organic Growth Projects
Rising production of crude oil, natural gas and natural gas liquids in the United States has created a need for fresh midstream assets. The partnership, with a strong backlog of organic growth projects, is well positioned to capitalize on the growing need for midstream infrastructure.
Among organic projects, the Gray Oak Pipeline system is a notable one. Gray Oak is likely to partly solve the pipeline bottleneck problem in the prolific Permian basin. The pipeline network, expected to be operational by the December quarter of 2019, will transport oil to the key Texas Gulf Coast markets from Permian and Eagle Ford at a rate of 900,000 barrels per day (B/D). It is to be noted that the partnership has a 42.25% ownership stake in the Gray Oak.
The backlog of organic growth projects will help the partnership keep boosting its DCF and quarterly distributions.
Other Stocks to Consider
Other two prospective players in the energy space are Antero Resources Corporation (AR - Free Report) and NGL Energy Partners LP (NGL - Free Report) . Both Antero Resources and NGL Energy sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Antero Resources is likely to see earnings growth of 20% in the next five years.
NGL Energy is likely to witness earnings growth of 227% for the fiscal year ending March 2019.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>