Crestwood Equity Partners (NYSE:CEQP) has made its investors a lot of money over the past year. In 2019 alone, the master limited partnership (MLP) has gained nearly 28%. Add in its 6.8%-yielding distribution, and the midstream company's total return is up to 32%.
Crestwood Equity could have more room to run. That's because the MLP has reached an inflection point where its earnings growth rate has shifted into a higher gear. Investors should see even more evidence of this acceleration in the company's second-quarter results, which Crestwood will release later this week. Those numbers, however, might not be the only good news the company has for its investors this week.
Expecting a big quarter
Crestwood got off to an excellent start this year by reporting strong first-quarter results a few months ago. The MLP's earnings grew 13% while cash flow surged nearly 28%. Fueling the company's high-octane performance was a combination of higher contributions from its Stagecoach gas pipeline joint venture with Consolidated Edison (NYSE:ED) and a big quarter from its COLT terminal in the Bakken Shale of North Dakota. Those positives more than offset some weakness in the company's core gathering and processing (G&P) business.
That G&P business, however, should help fuel growth during the second quarter. Two factors drive that view. First, the company expects to connect more than 100 new wells to its Arrow system in the Bakken this year that will gather three products (oil, natural gas, and water). That's roughly double last year's pace, when it connected 54 new wells. These incremental well connections set this system up to grow its oil and gas volumes by 25% this year. Meanwhile, the amount of water it collects for producers will rise by more than 60%. That surge in water volume is mainly because the company secured a new contract with Enerplus (NYSE:ERF), which will connect 50 wells to Crestwood's system this year.
On top of that, Crestwood bought full control of the Jackalope system in the Powder River Basin from its partner Williams Companies (NYSE:WMB) during the second quarter. The MLP paid $486.6 million for Williams' 50% stake in their joint venture. The win-win deal provided Williams with cash to pay down debt while giving Crestwood full control of one of its growth engines. The transaction should help move the needle for the company's results during the second quarter.
Anticipating more news on the growth front
In addition to the expectation that Crestwood should report strong second-quarter results, the company could also unveil additional growth projects. The MLP currently has lots of expansions under way. It expects to invest between $425 million and $475 million on projects this year, which is significantly more than the $332 million it spent last year. That's due in part to acquiring Williams' half of Jackalope, which means Crestwood will need to cover its former partner's spending requirements. In addition to that, Enerplus awarded the midstream company a contract to handle its produced water volume in the Bakken. Crestwood expects to invest $60 million through the next year to support Enerplus' growth.
Crestwood's growth-focused spending, however, is on track to fall off sharply next year. At the moment, the company only expects to spend $100 million to $150 million on expansion projects in 2020, mostly finishing up its Arrow water expansions and its Jackalope projects. Though even with that spending decline, the company is currently on track to grow its cash flow per share at a more than 20% compound annual rate through next year.
However, it's unlikely that the company's investment level will decline that sharply next year since it has several opportunities under development. It could potentially have secured enough customer support to add some of them to its backlog during the second quarter. For example, Crestwood is developing a second natural gas processing plant at its Orla complex in the Delaware Basin. The company is also exploring opportunities to add oil and produced water gathering services to support drillers in that region. Meanwhile, its Stagecoach joint venture in the Marcellus shale has ample expansion potential. Crestwood and its partner Consolidated Edison are currently evaluating opportunities to increase the capacity of their Stagecoach system. That would enable them to help meet that region's projected need for more pipeline space in the coming years.
Crestwood's ability to secure more projects like those would give it the fuel to continue growing its earnings and cash flow at a fast pace beyond next year.
It's all about the growth at this high-yield stock
While the main draw with Crestwood Equity Partners is its 6.8%-yielding dividend, the company also boasts some tantalizing growth prospects. That should enable the MLP to produce strong second-quarter results later this week. Meanwhile, the company will hopefully keep its growth engine well fueled by securing more expansion projects during the quarter. That compelling combination of growth and income potentially sets Crestwood up to continue delivering market-crushing total returns.