4 Midstream Companies to Consider as Colonial Pipeline's Operations Resume
- By Sydnee Gatewood
Gas prices in the U.S. swelled to over $3 a gallon on Wednesday following the sudden shutdown of the Colonial Pipeline due to a ransomware attack last Friday, leading to shortages along the East Coast.
While the company slowly brings its operations back on line, oil prices have started to retreat. They have further been hampered as the Covid-19 pandemic becomes more serious in India, which is the third-largest importer of crude oil. After rising 1% on Wednesday, Brent crude fell 2.3% on Thursday morning to $67.67 per barrel. Having risen 1.2% in the previous session, West Texas Intermediate declined 2.5% to $64.42 per barrel.
As a result of these developments, investors may be looking for opportunities in the energy industry that have had good returns. According to the GuruFocus All-in-One Screener, a Premium feature, oil and gas companies that trade below the Peter Lynch value of 15, have GF Values that are within the fairly valued range and have a predictability rank of at least one out of five stars include Enterprise Products Partners LP (NYSE:EPD), Frontline Ltd. (NYSE:FRO), Holly Energy Partners LP (NYSE:HEP) and Magellan Midstream Partners LP (NYSE:MMP). These companies have also outperformed the S&P 500 Index by at least 5% year to date.
Enterprise Products Partners
Enterprise Product Partners (NYSE:EPD) has a $51.93 billion market cap; its shares were trading around $23.67 on Thursday with a price-earnings ratio of 13.9, a price-book ratio of 2.07 and a price-sales ratio of 1.81.
The Houston-based company operates natural gas and crude oil pipelines.
Trading with a GF Value of $23.02 and a price-to-GF Value ratio of 1.02, the stock appears to be fairly valued currently.
Enterprise Products Partners' financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $3.3 billion in new long-term debt over the past three years, it has weak interest coverage. The low Altman Z-Score of 1.5 also warns the company could be at risk of bankruptcy if it does not improve its liquidity.
The company's profitability fared better, scoring a 7 out of 10 rating on the back of an expanding operating margin, strong returns that outperform over half of its competitors and a moderate Piotroski F-Score of 5, which indicates business conditions are stable. As a result of revenue per share declining over the past three years, the one-star predictability rank is on watch. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Enterprise Products Partners, David Tepper (Trades, Portfolio) has the largest stake with 0.16% of outstanding shares. Other top guru shareholders include First Eagle Investment (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio).
Frontline
Frontline (NYSE:FRO) has a market cap of $1.57 billion; its shares were trading around $7.92 on Thursday with a price-earnings ratio of 3.81, a price-book ratio of 0.97 and a price-sales ratio of 1.29.
Headquartered in Bermuda, the company operates a fleet of crude oil tankers.
With a GF Value of $7.29 and a price-to-GF Value ratio of 1.08, the stock appears to be fairly valued currently.
GuruFocus rated Frontline's financial strength 4 out of 10. Although the company issued approximately $509.1 million in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 1.16 warns it could be in danger of going bankrupt if it doesn't improve its liquidity. The return on invested capital also surpasses the weighted average cost of capital, indicating good value creation.
The company's profitability scored a 6 out of 10 rating. Despite having a declining operating margin, Frontline is supported by strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 7, which indicates business conditions are healthy. Although the company has recorded losses in operating income over the past several years, it still has a one-star predictability rank.
With 0.08% of outstanding shares, Jeremy Grantham (Trades, Portfolio) is Frontline's largest guru shareholder. Investment firm Barrow, Hanley, Mewhinney & Strauss also owns the stock.
Holly Energy Partners
Holly Energy Partners (NYSE:HEP) has a $2.22 billion market cap; its shares were trading around $21.05 on Thursday with a price-earnings ratio of 10.51, a price-book ratio of 5.47 and a price-sales ratio of 4.46.
The Dallas-based midstream company provides pipeline, terminal and storage services to transport natural gas and crude oil.
Based on a GF Value of $21.88 and a price-to-GF Value ratio of 0.96, the stock appears to be fairly valued.
GuruFocus rated Holly Energy's financial strength 3 out of 10 as a result of insufficient interest coverage. The Altman Z-Score of 1.46 also warns the company could be at risk of bankruptcy if it does not improve its liquidity. The ROIC, however, eclipses the WACC, indicating good value creation.
The company's profitability fared better, scoring a 7 out of 10 rating on the back of margin and returns that outperform a majority of competitors as well as a moderate Piotroski F-Score of 6. Due to recording a decline in revenue per share over the past five years, the one-star predictability rank is on watch.
Alps Advisors Inc. is currently the company's largest institutional shareholder with a 5.79% stake. Invesco Ltd., Energy Income Partners LLC, Goldman Sachs Group Inc., Mirae Asset Global Investments, JPMorgan Chase, Morgan Stanley, Wells Fargo and Clearbridge Investments also have significant positions in the stock.
Magellan Midstream Partners
Magellan (NYSE:MMP) has a market cap of $10.7 billion; its shares were trading around $47.97 on Thursday with a price-earnings ratio of 14.36, a price-book ratio of 4.66 and a price-sales ratio of 4.67.
Headquartered in Tulsa, Oklahoma, the company owns and operates ammonia and petroleum pipelines in the Mid-Continent oil province.
With a GF Value of $51.21 and a price-to-GF Value ratio of 0.94, the stock appears to be fairly valued currently.
Magellan's financial strength was rated 3 out of 10 by GuruFocus. As a result of issuing approximately $491.84 million in new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 1.74 warns of potential bankruptcy risk as assets are building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, indicating good value creation.
The company's profitability scored an 8 out of 10 rating. While the operating margin is in decline, Magellan is supported by returns that are outperforming a majority of industry peers as well as a moderate Piotroski F-Score of 6. The three-star predictability rank is on watch as a result of revenue per share declining over the past 12 months. GuruFocus says companies with this rank return an average of 8.2% annually.
With 0.29% of outstanding shares, First Eagle is Magellan's largest guru shareholder. Tepper, Bacon, Pioneer Investments (Trades, Portfolio), George Soros (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio) and Bruce Berkowitz (Trades, Portfolio) also own the stock.
Disclosure: No positions.
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This article first appeared on GuruFocus.
