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Why Units of NGL Energy Partners Are Soaring Today

By Matthew DiLallo – Apr 28, 2020 at 11:28AM

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The midstream company is making some changes.

What happened

Units of NGL Energy Partners (NGL 0.78%) are soaring today, up more than 28% as of 11:30 a.m. EDT, after the MLP updated its earnings outlook and reduced its distribution. 

So what

NGL Energy Partners updated investors on its strategy and outlook. The energy company reaffirmed its adjusted EBITDA forecast for fiscal 2020, stating that it now expects earnings to be at the higher end of its $565 million to $595 million guidance range. Furthermore, NGL Energy Partners said that it anticipates EBITDA in fiscal 2021 to be around $600 million. The company also said that it only plans to spend about $50 million on capital projects in fiscal 2021, which will enable it to be free cash flow positive.

An oil pump next to some storage tanks.

Image source: Getty Images.

Despite that outlook, the partnership reduced its distribution by 48.7% due to all the uncertainty in the energy market. That will enable NGL Energy Partners to retain an additional $100 million per year, which will enhance its liquidity and de-lever its balance sheet. That's one of several recent moves the MLP made to bolster its financial profile so that it can navigate through the current challenges in the energy market.

Now what

NGL Energy Partners is the latest MLP to slash its distribution due to the current upheaval in the oil market. This move will enable it to retain more cash so that it can bolster its balance sheet. That stronger financial position will enhance NGL Energy Partners' ability to weather this storm. However, given its debt concerns, it's too risky for income-seeking investors.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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