Units of NGL Energy Partners (NYSE:NGL) plunged on Tuesday, falling more than 20% by 10:45 a.m. EDT after the company cut its guidance and maintained its distribution. Those moves led FBR to downgrade the company and slash its price target, adding more downward pressure.
NGL Energy Partners gutted its fiscal 2017 guidance, lowering adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) expectations from a range of $485 million to $500 million all the way down to $380 million. Several factors caused the revision, according to the company: "the significantly warmer than normal winter resulting in lower propane volumes and pricing, continued pressure in crude marketing and transportation, decreased demand for diesel fuel, lower than expected margins for biodiesel sales, and an extended decline in gasoline line space values on the Colonial Pipeline."
Because of those issues, the company chose not to increase its distribution to $0.50 per unit as previously planned and instead held it flat at $0.39 per unit. Furthermore, the company warned that it could defer the increase for three additional quarters.
Meanwhile, NGL Energy Partners also released fiscal 2018 guidance, estimating that adjusted EBITDA should be in a range of $500 million to $525 million. However, that's not much higher than its initial estimate for 2017 despite the impact from a full year of service for the Grand Mesa Pipeline and other recent project completions and acquisitions.
This new guidance led analysts at FBR to downgrade NGL Energy Partners from outperform to market perform and slash their price target from $28 to $22. The analysts cited a higher degree of cash flow variability than they expected as the driver of the downgrade.
NGL Energy Partners has more variability within its cash flow than most MLPs. Because of that, it's hard for investors to have any confidence in the company's forecast because it has done such a poor job of meeting expectations in the past. As such, if market conditions deteriorate any further, then it's entirely possible that NGL Energy Partners will miss its watered-down guidance, which would likely spark another sell-off.