Please ensure Javascript is enabled for purposes of website accessibility

This is What Sent BreitBurn Energy Partners L.P. (BBEP) Down Another 10% Today

By Matthew DiLallo - Dec 12, 2014 at 3:00PM

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

The volatility in BreitBurn Energy Partners L.P. continues as it drops by double digits again today.

What: BreitBurn Energy Partners L.P. (BBEPQ) can't seem to catch a break lately. After plummeting more than 12% on Monday the company capped the week off with another near double digit loss. As we see below the stock is down over 9%, though it has bounced a tiny bit off its lows.

BBEP Price Chart

BBEP Price data by YCharts

Today's sell off is partially due to another dip in oil prices, which are down another 3% today. However, the other catalyst in the downdraft today is that the company was cut from buy to hold by an analyst at Wunderlich Securities. As part of that rating cut, the price target was slashed from $20 to just $9 per unit.

So What: The analyst making that call is worried that the company's distribution is at risk of being cut due to weak oil prices. The analyst noted that, "although the company has strong hedges...it would still have a coverage well below 1.0x in this oil price environment." That's a concern because a coverage ratio less than one means that the company is paying out more than it earns. Further, the analyst pointed out that the company has, "$300 million of liquidity available, which could help cover the distribution shortfall; however, the company is already levered high with debt-to-EBITDA of 4.3 times vs the peer average of 3.5 times." It's this tight liquidity that's a concern as it limits the company's options going forward. At some point, if oil prices keep falling and remain low, the company will have no choice but to take action, which includes cutting the payout.

Now What: It's really no surprise to see a downgrade here. Oil prices continue to fall and BreitBurn Energy Partners is the largest oil-weighted E&P MLP in the sector. Analysts are being cautious because we simply don't yet know when oil prices will bottom. So, until that happens, there's not much a long-term investor can do but hold on for what is likely to be a very bumpy ride.

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

Breitburn Energy Partners LP Stock Quote
Breitburn Energy Partners LP
BBEPQ

*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 service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

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.