For the first time since 2011, the Alerian Index, which tracks 50 master limited partnerships, is outperforming the S&P 500. It's impressive, especially given that the index doesn't include young upstart MLPs like Emerge Energy Services or Hi-Crush Partners, which, year to date, are up 216% and 73%, respectively. Even units of lumbering-yet-reliable MLPs like Enterprise Products Partners are enjoying banner years, which makes 2014 that much more painful for unit holders of Energy Transfer Partners. This stock has gone nowhere this year, and may be poised to go nowhere for the rest of the year. Let's take a closer look.
At the time of this writing, Energy Transfer Partners is up less than 1% year to date. Despite being "cheap" relative to its peers, analysts rate it a buy, and posting a strong yield of 6.7%, the market does not have any love for this MLP.
Part of the reason investors won't buy Energy Transfer Partners is because there are better options for growth, and better options for reliability. Let's look at growth first. Here is a look at five years of revenue and distribution growth for Energy Transfer Partners and Magellan Midstream Partners:
Clearly, Magellan is able to turn revenue growth into distribution growth, while ETP is not.
Now let's have a look at reliability. Here's the 10-year distribution history for Energy Transfer Partners compared to Enterprise Products Partners:
Enterprise has increased its distribution every quarter for the last nine years, including straight through the recession. That is the mark of reliability.
Magellan and Enterprise have both grown revenue and distributions at a relatively steady pace, but that is not the case with Energy Transfer Partners, which used a major acquisition to drive revenue growth, and is only now able to raise its distribution after a five-year hiatus. Unsurprisingly, the history bears out in unit price performance: Magellan is up 33% year to date, while Enterprise is up 20%. Investors are clearly more interested in reliable distribution growth than whether or not Energy Transfer Partners is cheap, despite nearly everyone agreeing that it is in fact, dirt-cheap right now.
A lackluster history might explain why ETP has done poorly so far, but what does the future hold? Right now, it's a big game of wait-and-see. Here are just a few potential projects coming down the pike for Energy Transfer:
- Susser Holdings merger
- Marcellus/Utica pipeline
- LNG export facility -- 40% stake
- Bakken/Three Forks pipeline
That is a significant slate, and at another MLP, that might be enough to generate investor enthusiasm, but at Energy Transfer, these are just impressive question marks. Will they come to fruition? The LNG export terminal is perhaps the biggest question mark there. Will they generate the expected revenue? And if so, will management be able to turn that into impressive distribution growth?
Frankly, Energy Transfer's management team doesn't have the track record of execution that other management teams have, so despite these growth initiatives, and despite the improved operational and geographic diversity ETP has attained over the last five years, investors remain hesitant.
Energy Transfer Partners' future may be brighter than its past, but investors can't be blamed for sitting on the sidelines until distribution growth ramps up and management proves it can deliver strong, sustainable results over time.
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