What happened
Units of Phillips 66 Partners (PSXP) rose 10.6% in December, according to data provided by S&P Global Market Intelligence. The main factor driving up the energy company's value last month was some positive commentary from an analyst.
So what
RBC Capital raised its price target on Phillips 66 Partners from $62 to $65 per unit -- implying about 3% of additional upside from the current price -- while maintaining its outperform rating. Driving the higher valuation is the view that the MLP is "well-positioned to generate highly visible cash flow growth" thanks to its "slate of organic growth projects." The company, for example, just started up its Gray Oak Oil pipeline, which, along with a couple other projects, should fuel healthy cash flow growth in 2020.
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Adding to Phillips 66 Partners' attraction, according to RBC Capital, is that it produces steady fee-based cash flow thanks to minimum volume commitments on its contracts. This factor reduces its commodity price and volume risk. That stable cash flow profile helps support the MLP's 5.5%-yielding distribution.
Now what
Phillips 66 Partners' combination of a stable cash flow profile and visible growth prospects should enable the MLP to continue increasing its high-yielding payout. That should give the company the fuel to keep producing healthy total returns for its investors. However, after the sharp rally last month, the company's yield and near-term upside aren't quite as compelling as they were at the beginning of December.
