Please ensure Javascript is enabled for purposes of website accessibility

Why Units of Noble Midstream Partners Cratered 31.5% in February

By Matthew DiLallo - Mar 4, 2020 at 10:51AM

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

Several factors weighed on the midstream MLP last month.

What happened

Units of MLP Noble Midstream Partners (NBLX) plunged 31.5% in February, according to data provided by S&P Global Market Intelligence. Several issues weighed on the midstream company, including its fourth-quarter results and lower oil prices.  

So what

Noble Midstream Partners reported its fourth-quarter results last month. It was a busy quarter for the MLP, one in which it closed a transaction with its parent Noble Energy (NBL) to acquire that company's remaining midstream assets as well as eliminate the costly management fees. The timing of the transaction weighed on the company's financial metrics: it covered its high-yielding distribution by only 1.1 times, and its leverage ratio rose to 4.2 times debt to EBITDA by year end. 

A bright red arrow going down.

Image source: Getty Images.

Those metrics, however, should improve as it benefits from owning the acquired assets for a full quarter as well as completes some of its expansion projects. In Noble Midstream's view, it will generate enough cash to cover its distribution by a more comfortable 1.2 to 1.4 times this year. Further, it sees leverage falling to a range of 3.3 to 3.7 times, which is much closer to its target level of 3.5 times. 

That outlook assumes Noble Midstream delivers earnings and cash flow within its guidance ranges. However, it has already reduced its 2020 guidance from its initial projections due to weaker oil and gas prices. That's a concern because commodity prices took a nasty tumble at the end of last month due to worries that the COVID-19 coronavirus outbreak would hurt demand for oil and gas. If consumption falls, it could force drillers to reduce their activity. That could result in lower volumes flowing through Noble Midstream's systems, cutting into its earnings.  

Now what

After last month's sell-off, Noble Midstream now yields an eye-popping 18%. A yield that high is a warning sign that the market doesn't believe the payout is sustainable for much longer. Given Noble's currently tight financial metrics, it might need to reduce its dividend if market conditions don't improve.

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

Noble Midstream Partners LP Stock Quote
Noble Midstream Partners LP
NBLX
Noble Energy, Inc. Stock Quote
Noble Energy, Inc.
NBL

*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
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

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.