Please ensure Javascript is enabled for purposes of website accessibility

3 Things Crestwood Equity Partners LP Wants You to Know

By Matthew DiLallo – Nov 15, 2018 at 5:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The midstream company has had a great year so far, and is optimistic about what's in store.

Crestwood Equity Partners (CEQP 0.80%) has been the top-performing midstream company this year, delivering a total return of more than 30% through mid-November. Those gains were fueled by notable improvements in the company's financial results, including in the third quarter.

However, as good as this year has been, the company's management team sees even better days ahead. That was evident from comments made during the third-quarter conference call. Here are the three key messages executives had for investors.

Pipelines going over a bridge with the night sky in the background.

Image source: Getty Images.

1. We're exceeding our expectations

CEO Bob Phillips led off the call by discussing the company's financial results:

Looking at the third quarter and for the first nine months of 2018, we've certainly exceeded our internal expectations for both adjusted EBITDA, as well as distributable cash flow, and I think would largely beat consensus estimates along the way. So, we're very pleased with that. That does position us to have a really strong finish to 2018 and we're clearly on track to achieve our financial guidance targets, which at the midpoint, you might remember, would imply year-over-year adjusted EBITDA growth of about 10% from 2017, and recall that we adjusted our guidance up midyear as we gained more confidence in the volumes across our systems and the services that we're providing to customers.

As Phillips noted, the company's results this year have trended ahead of its expectations. Two factors have fueled those stronger-than-expected results. First, the company is completing its expansion projects on time, which has enabled it to start cashing in on those investments. It has also benefited from the improvement in commodity prices this year. Those higher prices have given drillers the money to complete more wells, which drove higher volumes into Crestwood's systems. On top of that, the company has been able to take advantage of the improving market conditions to move larger quantities of oil and natural gas liquids (NGLs) by truck and rail to higher-priced markets.

2. We expect growth to accelerate in the coming years

However, as good as 2018 has been, Crestwood expects even better results in the coming years. Phillips noted on the call that the company's success this year positions it to "deliver adjusted EBITDA and DCF [distributable cash flow] growth of about 15% per year over the next few years starting in 2019." Among the things underpinning that view are the expansion projects the company has underway.

Phillips noted that Crestwood is in the process of expanding three of its gathering systems: Arrow in the Bakken, Nautilus in the Delaware Basin, and Jackalope in the Powder River Basin. Crestwood and its joint venture partner Williams Companies (WMB 0.21%) recently sanctioned a major expansion of Jackalope to support the growth of Chesapeake Energy (CHKA.Q) and other customers in that area. They expect to finish one small project this year and a larger one by the end of 2019. However, with Chesapeake Energy ramping up its drilling activities in the area, Crestwood and Williams anticipate that the expanded system will quickly fill up, which leads them to believe that they might need to sanction another project in the next year. Because of this increased visibility on future expansion projects, Crestwood's "confidence level ... is high," according to Phillips.

A pipeline under construction.

Image source: Getty Images.

3. We're looking at resuming distribution growth in 2019

With cash flow on pace to grow at a fast clip in the coming years, Crestwood should soon be generating more than enough money to support its current distribution to investors as well as finance a sizable portion of its expansion projects. Because of that, the company is considering the options for its growing cash flow. When asked by an analyst on the call what the company might do with that cash, CFO Robert Halpin said, "I think we would probably lean toward some appropriate and modest amount of distribution [increase]."

Halpin noted that with the company's financial metrics already at its target levels, and on pace to improve with cash flow, its priority is to fund high-return expansion projects. However, with "the very clear line of sight we have to the expansion in growth in 2019," management is evaluating an incremental return of capital to investors starting next year.

Entering a period of sustained success

After enduring several challenging years, Crestwood Equity Partners has started turning around this year. That rebound should accelerate in 2019 and beyond, fueled by the growth projects it has underway, as well as those it's increasingly confident it will develop in the future. Those expansions should provide the company with an increasing supply of cash flow, which should enable it to resume distribution growth next year. That growing income stream should give the company the fuel to continue delivering strong total returns, which makes it a great stock to buy for the long haul.

Matthew DiLallo owns shares of Crestwood Equity Partners LP. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Crestwood Equity Partners LP Stock Quote
Crestwood Equity Partners LP
CEQP
$29.13 (0.80%) $0.23
Chesapeake Energy Stock Quote
Chesapeake Energy
CHKA.Q
Williams Companies Stock Quote
Williams Companies
WMB
$33.90 (0.21%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
360%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.