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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Markwest Energy Partners L.P. (NYSE: MWE ) opened sluggishly on Tuesday after Jefferies downgraded the natural gas processor from buy to hold.
So what: Along with the downgrade, analyst Christopher Sighinolfi lowered his price target to $75 (from $78), representing about 7% worth of upside to yesterday's close. While momentum traders might be attracted to the stock's strength in recent weeks, Sighinolfi thinks that Summit Midstream's (NYSE: SMLP ) recent 40% stake in the Ohio Gathering System -- Markwest remains the 60% owner -- serves as an overlooked headwind.
Now what: Jefferies cut its 2014 EPS outlook for Markwest from $0.56 to $0.45 and its 2015 view from $1.49 to $1.12. "We highlight Summit Midstream's intention to exercise its option to take a 40% stake in OH Gathering & Condensate in 2Q and remain cautious on UMTP's open season," noted Sighinolfi. "MWE units are up ~11% since mid-Dec, outperforming G&P peers by ~500 bps despite an expectation for the Summit acquisition to curtail near-term MWE Utica annual cash flows by an estimated ~$35-$40mm." When you couple those risks with Markwest's limited growth prospects, it's tough to disagree with Jefferies' cautious stance.
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