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Update Energy Transfer Partners (ETP)
03/02/2011 12:32 pm EST
So what did investors hear that day? Solid news for the fourth quarter of 2010 with reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $411 million, flat with the fourth quarter of 2009, and distributable cash flow of $284 million, up 11% from the fourth quarter of 2009. For the year distributable cash flow came to $1.03 billion.
As far as cash distributions go, 2011 looks like a really good year. Cash flows from several recently completed projects that entered service in the fourth quarter of 2010 will ramp up. Standard & Poor’s estimates that cash distributions will climb by 2.9% in 2011.
But when it came to new projects, the list was pretty short. Management announced plans to invest $300 million in a 160-mile gas pipeline called the Rich Eagle Ford Mainline that will take gas from the Eagle Ford Shale formation to connect with the Chisholm pipeline that the partnership current has under construction. Energy Transfer Partners will also build a new processing plant its LaGrange site.
But that’s pretty much it.
Frankly, I’d hoped for more. And in some markets the lack of new projects would make me sell the stock.
But at the moment, when economic growth seems like it might be slowing and when the middle of 2011 is looking like a major test for stock valuations (see my post http://jubakpicks.com/2011/03/01/even-strong-manufacturing-data-point-to-crunch-time-around-the-middle-of-2011/ , the predictability of Energy Transfer Partners is attractive. And the current 6.5% yield, with all the odds favoring an increase in distributions in 2011, is, well, extremely attractive.
On the basis of that yield and the increase in distributions, I think these units could appreciate to $60 by January 2012. That’s roughly a 10% gain from here. Add in a 6.5% dividend and that’s a very good package considering the stock market environment for the second half of 2011. As of March 2, 2011 I’m keeping Energy Transfer Partners in my Jubak’s Picks portfolio http://jubakpicks.com/ with a price target of $60—up from the current target of $54--by January 2012.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Energy Transfer Partners as of the end of January. For a full list of the stocks in the fund as of the end of January see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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