Buckeye Partnrs

Buckeye Partnrs

SUMMARY

SUMMARY DATA

OVERVIEW

Based in Houston, Texas, Buckeye Partners L.P. is a publicly traded partnership that owns and operates one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered. The partnership’s pipeline system stretches across 6,000 miles in 16 states and it owns 100 liquid petroleum product terminalswith an aggregate storage capacity of 69 million barrels. Its storage operations span across 22 states in America with additional facilities at offshore Puerto Rico and The Bahamas. It also operates about 2,800 miles of pipeline, under agreements with major oil and chemical companies, and owns a natural gas storage facility in northern California. Buckeye’s flagship Bahamas Oil Refining Company International Limited (BORCO) marine terminal in the Bahamas is one of the largest oil and petroleum products storage facilities in the world, serving the international markets as a premier global logistics hub.

Buckeye segregates its operations into five reportable business segments: Pipelines & Terminals, International Operations, Natural Gas Storage, Energy Services, and Development and Logistics.

Buckeye realigned its business segments effective January 01, 2011 to club the operations of the former Pipeline Operations segment and the Terminalling & Storage segment into one segment, Pipelines & Terminals. Also, the partnership will report the results from its BORCOfacility and its terminal in Yabucoa, Puerto Rico (previously included as part of the Terminalling & Storage segment) under the newly formed International Operations business segment.

The Pipelines & Terminals segment receives refined petroleum products from refineries, connecting pipelines, and bulk and marine terminals, and transports those products to other locations for a fee and provides bulk storage, as well as terminal throughput services, in the continental United States.

The International Operations segment provides marine bulk storage and marine terminal throughput services. The segment has two liquid petroleum product terminals, one in Puerto Rico and the other at The Grand Bahama Island in the Bahamas, with an aggregate storage capacity of 26.1 million barrels.

In the Natural Gas Storage segment, the partnership’s Buckeye Gas Storage LLC, through its subsidiary Lodi Gas Storage, L.L.C. provides natural gas storage services through a facility located in Northern California. The facility has approximately 30 billion cubic feet (Bcf) of working natural gas storage capacity and is connected to Pacific Gas and Electric’s intrastate gas pipelines that service natural gas demand in the San Francisco and Sacramento areas in California. The Natural Gas Storage segment does not trade or market natural gas.

The Energy Services segment is a distributor of refined petroleum products, including gasoline, propane, ethanol, biodiesel and petroleum distillates such as heating oil, diesel fuel, and kerosene in North Eastern and Mid-Western United States. The segment’s storage capacity is approximately 1.0 million barrels and its principal customers are wholesale product sellers and commercial users.

Buckeye Partners’ Development and Logistics segment offers terminal and pipeline operations, maintenance services, and related construction services to third parties. The segment also provides engineering and construction management services to chemical companies. Additionally, it owns and leases a portion of its pipeline to a third-party chemical company; owns interest in a crude butadiene pipeline; owns two underground propane storage caverns in Indiana and Illinois; owns and operates an ammonia pipeline and has majority ownership of Sabina Pipeline located in Texas.

Buckeye GP LLC, the wholly owned subsidiary of Buckeye GP Holdings L.P., serves as the general partner of Buckeye Partners L.P. Recently, Buckeye Partners merged with its general partner Buckeye GP Holdings L.P., with Buckeye Partners L.P. being the surviving partnership, trading on NYSE with a ticker symbol of “BPL”.

Source: Company

REASON TO BUY

Buckeye Partners’ attractive portfolio of refined petroleum product transportation assets in key geographical markets generates stable and recurring fee-based revenue, providing an above-average level of safety to its earnings and cash flows. The partnership’s capital expenditure for the nine months ending September 30, 2012stood at $233.0 million. With a full year 2012 capital expenditure outlook in the range $310 million$340 million compared to the 2011 capex level of $305.3 million. Theincrease in capital outlay for 2012 indicates that the partnership continues to develop its infrastructure to provide better service to its consumers.

To cope with increased customer demand, the partnership has adopted the inorganic route to expand its operations. The partnership has been able to enlarge its operations through periodic acquisition and equity investments. Buckeye’s acquisition of Perth Amboy Terminal has been another successful addition to the partnership’s business and is expected to be a highly efficient storage facility. The partnership’s 2011, BORCO acquisition is also contributing towards topline growth. BORCO facility aided 9.8% year-over year revenueincrease in the third quarter 2012 owing to an additional 1.1 million barrels of storage which was brought online during the quarter. We believe BORCO will continue to offer good prospects in the near term. Besides, Buckeye’s operating unit Buckeye Pipe Line Holdings’ acquisition of an additional 20% stake in the pipeline and terminal operator WesPac Pipelines – Memphis LLC will further accentuate returns for the partnership.

Buckeye’s strong financial position enables it to finance infrastructure related projects thereby augmenting long-term growth. The partnership also leverages its solid capital position to reward unitholders and maintains a healthy distribution rate. The partnership’s cash flow from operating activities increased significantly in the nine months endingSeptember 30, 2012 by 91.1% to $348.0 million from $182.1 million in the nine months ending September 30, 2011. Buckeye as of September 30, 2012 had available liquidity of $484.4 million which will aid the partnership in meeting normal operating expenses andfurther finance its future growth related ventures.

REASONS TO SELL

The demand for services that Buckeye Partners provides through its pipeline and terminal & storage businesses depends on demand from the regions in which it serves. Factors that could adversely affect demand are changes in economic conditions, weather and modes of transportation and travel.

Buckeye and its subsidiaries are subject to rate changes under the Federal Energy Regulatory Commission (FERC). The possibility of FERC requiring the partnership to transition to any ratemaking methodology less favorable than the Buckeye methodologywould adversely affect Buckeye’s business.Uncertainty regarding pending rate case approvals on tariff charged for transportation of jet fuel volumes and the recently proposed market-based rates for delivery of petroleum products could also affect the partnership’s operational margin and hence itsobjectives. Along with that stringent environmental and federal regulations expose Buckeye to increasing cost of operations and compliance costs, which negatively impacts the partnership’s balance sheet.

The partnership’s business is strongly influenced by commodity price sensitivities, including petroleum and diesel. Buckeye Partners’ Energy Services segment continued to display weak results and took a22.6% hit year over yearin the third quarter 2012 and we believe the Energy business could continue to pose challenges to the partnership’s growth interests. Unless prices of jet fuel and diesel recover significantly in the upcoming quarters, we expect Buckeye Partners’ revenue to remain vulnerable.

RECENT NEWS

Buckeye Posts Mixed 3QNovember 05, 2012

Buckeye Partners L.P. clocked operating earnings of $0.87 per unit in the third quarter of 2012 beating the Zacks Consensus Estimate of $0.73 per unit. Earnings were also higher than the year-ago figure of $0.64.

Earnings in the third quarter 2012 outperformed on account of Buckeye’s favorable business conditions and effective execution of its growth plans. In addition, expansion in pipeline and terminal units including the Perth Amboy facility contributed to the bottom-line increase.

Total Revenue

Total revenue at the end of the third quarter 2012 slid 13.5% to approximately $966.0 million from $1,116.9 million in the prior-year quarter. Reported revenue widely missed the Zacks Consensus Estimate of $1,149 million.

Lower Energy Service sales during the third quarter resulted in the overall decline in the partnership’s top-line.

Segment Analysis

The top-line shortfall was mainly attributed to a sharp 23% decline in revenue at Energy Services in tandem with a 10% fall in revenues at the Development and Logistics business. However, a 20% increase in Pipelines & Terminals revenue partially offset the decline.

Operational Highlights

During the quarter, total costs and expenses decreased 29% year over year to $852.6 million from $1,194.2 million in the prior-year period. A 20.8% fall in cost of product sales and natural gas storage was responsible for the overall decline.

The partnership’s adjusted EBITDA increased substantially by 20.6% to $152.6 million from $126.5 million in the third quarter of 2011.

Interest and debt expenses declined to $28.7 million from $33.2 million reported in the year-ago quarter.

Financial Screening

Total cash and cash equivalents as of September 30, 2012, were close to $3.0 million versus approximately $13.0 million as of December 31, 2011.

Buckeye's long-term debt as of September 30, 2012, was $2.7 billion compared with $2.4 billion of long-term debt as of December 31, 2011.

Buckeye’s capital spending during the quarter stood at $85.0 million, compared with $90.9 million in the prior-year quarter.

Cash Distribution

The partnership declared a cash distribution of $1.0375 per unit payable on November 30, 2012 to unit holders of record on November 12, 2012. This distribution also represents a 1.2% year-over-year increase from $1.025 per unit announced in the third quarter 2011.

Developments

The partnership’s large-scale Bahamas Oil Refining Company International Limited (BORCO) facility came online on July 1, 2012 and has supplemented its earnings in the third quarter 2012. Buckeye’s Perth Amboy unit purchased in late July 2012 also added to the partnership’s earnings.

VALUATION

We believe commodity price volatilities and continued soft performance from the partnership’s Energy business would continue to pose challenges to its financials.Moreover, risks related to rate cases of jet fuel transportation tariff and implementation of market rates on petroleum supply could act as potential negative catalysts to growth.

However, Buckeye Partners’ strategic additionalstake acquisitions in WesPac Pipelines – Memphis LLC in conjunction with healthy financials and strong position of BORCO could propel targeted growth in the near- term.

Units of Buckeye Partners are presently trading at 19.2x trailing 12-month P/E ratio, compared with 25.0x for the industry average and 14.9x for S&P 500. Over the last five years, the partnership has traded in the P/E multiple range of 10.3x to 25.0x on trailing 12-month earnings.

We upgrade our recommendation to Neutral from Underperform with target price of $52.00 per unit, which is based on 15.1x 2013 earnings estimate.

Key Indicators

Earnings Surprise and Estimate Revision History

StockResearchWiki.com – The Online Stock Research Community

Discover what other investors are saying about BuckeyePartnrs (BPL) at StockResearchWiki.com:

DISCLOSURES & DEFINITIONS

The analysts contributing to this report do not hold any shares of BPL. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts’ personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts’ compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1035 companies covered: Outperform - 15.8%, Neutral - 77.1%, Underperform – 6.5%. Data is as of midnight on the business day immediately prior to this publication.

Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company’s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock’s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively.