The inflationary environment is a “net positive” for midstream performance and midstream companies, which are likely to benefit from continued strong demand, tight supplies, higher pricing, wider margins, and growing volumes, according to Wells Fargo.
Magellan Midstream Partners
Analyst Michael Blum upgraded the rating for Magellan Midstream Partners, L.P (NYSE:MMP) from Equal-Weight to Overweight, while raising the price target from $54 to $56.
The company is poised to benefit this year from inflation and higher margins on butane blending, Blum said in the upgrade note.
“At the recent EIC conference, management noted that increases related to higher PPI could be applied across multiple years. In our view, this creates a more durable bull thesis for MMP as it supports several years of elevated growth (depending on the pace of PPI increases) and a higher NTM valuation multiple,” the analyst wrote.
NuStar Energy
Blum upgraded the rating for NuStar Energy L.P. (NYSE:NS) from Equal-Weight to Overweight, while raising the price target from $17 to $18.
NuStar Energy is also well positioned to benefit from inflation, “with 95% of its pipeline under FERC regulated tariffs (subject to PPI adjuster), whereby any reduction in refined product volumes due to demand destruction should be offset by inflation projection,” the analyst said in the upgrade note.
“The partnership’s Permian gathering assets continue to grow, and the recent initiative to reduce costs and capital expenses by $50MM should improve margins,” he added.
Sunoco
The Wells Fargo analyst downgraded the rating on Sunoco LP (NYSE:SUN) from Equal-Weight to Underweight, while reducing the price target from $46 to $41.
Rising gasoline and diesel prices could “eventually lead to demand destruction and lower margins,” Blum said in the note.
“We see additional risks from inflation related margin pressure (i.e., higher operating costs) and backwardation (hedging losses and potential lower inventories across the fuel distribution value chain),” he added.
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Cheniere Energy Partners
Blum downgraded the rating on Cheniere Energy Partners LP (NYSE:CQP) from Equal-Weight to Underweight, while setting a price target of $55.
He said that the downgrade was based mainly on valuation, following the stock’s almost 28% gains year to date. “However, at the current valuation, we see limited upside to cash flows relative to Cheniere Energy Inc.’s (LNG) marketing exposure,” he mentioned.
