Crestwood Equity Partners (NYSE:CEQP) was by far the best-performing master limited partnership (MLP) in 2018. While the average MLP tracked by the Alerian MLP ETF delivered a negative total return last year, Crestwood's total return was an exceptional 17%. Driving that outperformance was a noticeable recovery in the company's financial results.
Those numbers should have continued improving during the fourth quarter, which is one of a few things investors need to keep an eye on when the midstream company unveils them later this week.
1. See whether earnings were on target
Crestwood Equity initially anticipated that it would generate between $390 million and $420 million of adjusted EBITDA during 2019, which implies 10% year-over-year growth at the midpoint. However, the company bumped up the low end of that range to $400 million because of its strong performance in the first half. The company also anticipates that it will generate between $195 million and $225 million in distributable cash flow (DCF).
After producing $306 million of adjusted EBITDA and $159.3 million of DCF through the third quarter, Crestwood needed to haul in $94 million to $114 million in adjusted EBITDA and $35.7 million to $65.7 million of DCF during the fourth quarter to achieve its forecast. Investors should see whether that was the case. If not, they should review what went wrong and whether it will have a long-term impact on the company's growth prospects.
2. See whether it secured any more expansion projects
The main driver of Crestwood's financial rebound has been the company's ability to lock up new expansion projects. Last year, for example, the company initially expected to invest $250 million to $300 million on expansions but boosted those figures up to a range of $300 million to $350 million after securing additional projects, such as expanding its Jackalope joint venture with Williams Companies (NYSE:WMB) to support the growth of Chesapeake Energy (NYSE:CHK) in the Powder River Basin. That joint venture with Williams Companies should be a key growth driver in the fourth quarter because of the anticipated start-up of additional processing capacity at their Bucking Horse processing plant. It should also help drive growth in 2019 as they finish the second Bucking Horse facility and build more gathering pipelines so that Chesapeake can double its output from the region in 2019.
Crestwood currently expects to invest another $250 million to $300 million in expanding its systems in 2019. However, the company has several potential growth projects in development, including building a second Orla gas processing plant in the Delaware Basin as well as adding oil gathering and terminaling to its service suite in that region. The company's success in capturing these and other opportunities would enable it to increase DCF per unit at an even faster pace than the more than 15% compound annual growth rate it expects to deliver through next year.
3. See whether it plans to return more cash to investors in 2019
With cash flow set to rise at a fast pace over the next couple of years, and its financial profile growing stronger, Crestwood Equity Partners should be in the position to start returning more money to shareholders in 2019. While the MLP pays an attractive distribution that currently yields 7.4%, the company hasn't increased its payout since reducing it to the present level in early 2016.
However, that could change in 2019. CFO Robert Halpin noted on the company's third-quarter conference call that Crestwood could use its rising stream of excess cash to invest in additional expansion projects, initiate a unit-repurchase program, or start increasing its payout.
The CFO did give us a hint of what's to come: "I think we would probably lean toward some appropriate and modest amount of distribution [increase]." Given those comments, investors should see whether the company unveils plans to return more cash to investors this year.
The future looks bright at this MLP
Crestwood's multiyear turnaround plan started paying dividends last year as its earnings began growing again, which fueled market-smashing total returns. That trend should have continued during the fourth quarter, which would have the company well positioned for continued success in 2019. Those are among the many factors that make Crestwood one of the best MLPs to buy these days.