What happened
Shares of Crestwood Equity Partners (CEQP) rose 27.2% in March, according to data provided by S&P Global Market Intelligence. As part of the energy sector, Crestwood has risen with oil prices as the global economy looks forward to reopening. In addition, Crestwood announced a transaction toward the end of the month in which it would buy out a large unitholder while also increasing its 2021 guidance.
Image source: Getty Images.
So what
In late March, Crestwood announced it would be buying out large unitholder First Reserve, a private equity firm that held interests in both Crestwood's general partner and its limited partnership. Private equity firms eventually need to cash out of their investments to pay back investors, and now may have seemed like a mutually beneficial time to do so. Crestwood's shares have sharply rebounded from the pandemic-induced panic selling of a year ago, yet have still not recovered to the five-year highs set back in July 2019. So both sides may feel like they are getting a fair deal on the transaction.
Crestwood will buy back 11.5 million units for $268 million, and First Reserve will also sell another 6 million units to the public via a private placement for $132 million. The buyback will reduce units outstanding by about 15%, saving the company $29 million per year in dividend payments.
But the news gets even better for public unitholders. On the announcement, Crestwood also raised its 2021 EBITDA guidance to a range of $575 million to $625 million, up from prior guidance of $550 million to $610 million given on the February earnings call. Management also announced a new $175 million share repurchase program -- another great sign. Crestwood has a high dividend and also a fair amount of debt. Paying for the dividend, growth projects, and de-levering had sucked up all the company's cash in recent years, so management announcing a share repurchase means it's confident of bigger cash flows this year and in the future.
Now what
Although renewable energy is on the rise, the economy will still need oil and gas for some time to come. Despite the stock's volatility, Crestwood's largely fee-based businesses in gathering and processing and storage and transportation assets proved resilient during the pandemic. Though it's not as cheap as it was recently, investors could do worse than Crestwood's 9% dividend, now with potential share repurchases, too.
