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TICKERS: PSXP

Oil & Gas MLP 'Represents a Solid Opportunity for Investors'
Research Report

Source:

A Raymond James report shared the highlight of the "strong" quarter for this entity.

A July 27 research report from Raymond James indicated that Phillips 66 Partners LP (PSXP:NYSE) exceeded its $1.1 billion run rate EBITDA target a few quarters earlier than expected. "Despite considerable commodity and master limited partnership (MLP) market volatility over the past several years, the MLP has been able to execute on its robust growth strategy," wrote analyst Justin Jenkins.

Phillips 66 Partners' Q2/18 adjusted EBITDA was $276 million ($276M), well above Raymond James' forecast of $254M and consensus of $252M.

Discounted cash flow similarly came in higher than expected, at $204M. This compares to Raymond James' estimate of $186M and consensus of $185M. Jenkins noted, "Based on the discounted cash flow upside relative to our model, distribution coverage of 1.38x easily topped our estimate (1.26x), showing strong excess cash flow generation, even while growing the distribution by 5.3% sequentially in Q2/18."

The MLP's growth outlook "looks attractive," Jenkins said. At the forefront of anticipated growth is the Gray Oak Pipeline, which is slated to be Phillips 66 Partners' "largest ever organic project." It will give the MLP a strong footprint in the Permian Basin and, simultaneously, broaden its access to advantaged crude oil.

Management expects initial capacity of Gray Oak, which completed another open season, to be 800,000 barrels per day (800 Mbpd); already, 700 Mbpd in commitments are lined up. Capacity could be expanded to about 1 million barrels per day but would take additional capital to do so. "The total cost of the pipe is expected to be $2B (75% share at Phillips 66, for now) and exemplifies the MLP's ability to develop larger-scale projects at the partnership level," indicated Jenkins.

Generally, he concluded, Phillips 66 Partners L.P. offers an "attractive risk/reward proposition." It has a "supportive sponsor (Phillips 66) providing growth visibility through a large dropdown backlog, and both companies have impressive asset bases that provide connectivity and bolt-on options. Couple this with strong organic growth prospects and optionality from mergers and acquisitions, and we think Phillips 66 Partners represents a solid opportunity for investors."

Raymond James maintains its Outperform rating and $60 per share target price on the MLP, whose stock is currently trading at $53.32 per share.

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Disclosure:
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Disclosures from Raymond James, Phillips 66 Partners LP, July 27, 2018

ANALYST INFORMATION

Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

RAYMOND JAMES RELATIONSHIP DISCLOSURES
Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months.




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