Credit Suisse Pounds the Table on Four Top MLP Picks (CS, TRGP, GEL, ACMP, PAA, KYN, SRV)

oil pipeline
oil pipeline

There was a time on Wall St., back in the dot-com bubble era, when the big firms and their hot stock analysts would go to great lengths to sell their stock research ideas to investors. Using all sorts of superlatives and often breathlessly touting soon-to-come parabolic moves, they produced research reports that often sent stocks skyrocketing.

Those days came to an end as the dot-com bubble burst and many high-flying stocks and analysts were finished. We found a team of analysts so excited about the names they are covering that pounding the table, albeit honestly and more gently, may be back.

The MLP research team at Credit Suisse Group (NYSE: CS) are still firm believers in their "catch-up" rally slogan. MLPs underperformed the S&P 500 in 2012 for the first time since 1999, with the Alerian MLP Index (AMZX) gaining 4.8% vs. 16.1% for the broader market. Master limited partnerships (MLPs) have made up some ground thus far in 2013, as the S&P 500 gained 5.03% in January vs. 12.5% for the AMZX and 9.8% for the Cushing MLP Index. With comprehensive tax reform likely off the table, Credit Suisse believes that tax fears will weigh less on MLPs, and while they are still positive on the oil infrastructure MLP stocks, they also think that one-off newer issues as well as double-digit growers could extend the rally we have seen in January and February.

Today they made a big raise in the price targets of two of their top names, and we also highlight two additional names the firm has been vocal in their support of recently.

When any analyst adds "Everybody should own this stock" to a research piece, you have to take a serious look. That was the headline for Outperform-ranked Targa Resources Corp. (NYSE: TRGP). Fourth-quarter revenue beat their forecasts as Targa reported $0.59 per share (unit), versus their estimate of $0.48. Forecasting 30% dividend (distribution) growth guidance for the next year, and growth for the next two years of 26.3% and 21.3%, respectively, they lowered their target yield range to 3% to 3.25%. When they apply this yield target range, it implies a $73 to $79 valuation, with a $76 price target. Shares closed yesterday at $62.07. They estimate total return potential of 21% to 31%, when including a dividend forecast of $2.16 per unit.

Also out today, a big price target increase for Genesis Energy L.P. (NYSE: GEL) was given. Genesis fourth-quarter results were ahead of Credit Suisse and Wall St. consensus estimates. Discounted cash flow (DCF/unit) came in at $0.62 per unit, above their forecast of $0.59 per unit and the $0.58 per unit consensus. Adjusted EBITDA was $62mm, and was above their $58mm and consensus $59mm. They also raised their 2013 EBITDA by about 5% and for 2014 by about 11%. Distribution growth outlook remains 10.6%. They raise the price target $9 to $52 and maintain an Overweight rating.

Recently added to the Credit Suisse U.S. Focus list is Access Midstream Partners L.P. (NYSE: ACMP). In the analysts' view, Access represents one of the best investment opportunities in the MLP universe from both a risk and return perspective. Their $41 target price, combined with forecast distributions of $2.00 per unit over the next 12 months, offer an 18% total return potential for investors.

One additional name that the Credit Suisse team favors is Plains All American Pipeline L.P. (NYSE: PAA). Plains is guiding its distribution growth to approximately 9% to 10% for the next few years. The analysts are projecting 10% in the next few years as they believe that Plains can generate enough discounted cash flow to maintain at least 1.3x coverage on the higher growth outlook. They raise their price target $8 to $60 per share. Assuming $2.40 per unit in distributions over the next 12 months implies that Plains units may have a 12-month total return potential of 16% to 23%. They also keep their rating on the stock at Outperform.

The advantage to owning MLPs in an investor portfolio is that they often present one of the best total return opportunities. Investors seeking diversification in the space may want to look at the Kayne Anderson MLP Investment Co. (NYSE: KYN) or the more aggressive Cushing MLP Total Return Fund (NYSE: SRV). Both are exchange traded funds (ETFs) that offer a basket of MLP names.

Filed under: 24/7 Wall St. Wire, Analyst Calls, Infrastructure, Oil & Gas Tagged: ACMP, CS, featured, GEL, KYN, PAA, SRV, TRGP