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Why Markwest Energy Partners L.P. Slipped This Morning

By Brian D. Pacampara, CFA – Feb 25, 2014 at 12:00PM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Markwest Energy Partners L.P. (NYSE: MWE) opened sluggishly on Tuesday after Jefferies downgraded the natural gas processor from buy to hold.

So what: Along with the downgrade, analyst Christopher Sighinolfi lowered his price target to $75 (from $78), representing about 7% worth of upside to yesterday's close. While momentum traders might be attracted to the stock's strength in recent weeks, Sighinolfi thinks that Summit Midstream's (SMLP -1.25%) recent 40% stake in the Ohio Gathering System -- Markwest remains the 60% owner -- serves as an overlooked headwind.

Now what: Jefferies cut its 2014 EPS outlook for Markwest from $0.56 to $0.45 and its 2015 view from $1.49 to $1.12. "We highlight Summit Midstream's intention to exercise its option to take a 40% stake in OH Gathering & Condensate in 2Q and remain cautious on UMTP's open season," noted Sighinolfi. "MWE units are up ~11% since mid-Dec, outperforming G&P peers by ~500 bps despite an expectation for the Summit acquisition to curtail near-term MWE Utica annual cash flows by an estimated ~$35-$40mm." When you couple those risks with Markwest's limited growth prospects, it's tough to disagree with Jefferies' cautious stance. 

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Summit Midstream Partners Stock Quote
Summit Midstream Partners
SMLP
$19.75 (-1.25%) $0.25

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