Smooth Pipeline Operators

 | Oct 03, 2012 | 2:00 PM EDT
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The transport subsector of energy is one that I've followed closely this year. In this volatile equity market, many advisors seeking yield have steered clients into pipeline master limited partnerships (MLPs), many of which have shown decent year-to-date price appreciation.

Enterprise Products Partners (EPD) is up nearly 18% for 2012. The stock cleared a classic double-bottom base in July, and it has been trending along its 10-week line, forming a shallow consolidation below its July 20 all-time high of $54.98.

Not much has really changed on the chart since I last wrote about Enterprise. As far as its story is concerned, the Ohio-based company has slowed its pace of acquisition, and is focusing more on growing in-house projects. It has primarily been focused on the Midwest, but is currently expanding production capabilities in Texas. 

I recently joined advisory firm Portfolio, which counts Enterprise among its holdings.

When I last wrote about Enterprise, I also noted that shares of Cheniere Energy (LNG), a liquefied natural gas pipeline operator, were extended from a buy point. Indeed, the stock has provided a nice lesson on why it's often best to heed Axl Rose's timeless advice: Show a little patience.

Cheniere began pulling back on Sept. 17, essentially in tandem with the wider market, and has trended lower in a fairly orderly fashion. It rebounded quickly from a Sept. 26 gap lower, a move that also was in synch with a downdraft on the major indices.

Meanwhile, a pipeline operator that popped onto my scans this month was Marathon Petroleum (MPC). The company, itself spun off from Marathon Oil (MRO) in 2011, filed plans to spin off its MPLX pipeline unit (expected ticker: MPLX), which is structured as a limited partnership. Many analysts expect the deal will be done before the year is over.

Marathon Petroleum stock, meanwhile, is up 66% for the year, and is consolidating below its Sept. 14 high of $56.22. Technically the stock looks healthy, with support above key moving averages.

When it comes to earnings estimates, the picture is somewhat mixed.  The company is expected to earn $8.12 per share this year, and $7.47 in 2013 (after the expected initial public offering for MPLX). That would represent a decline of 8% from 2012 targets. In the most recent quarter, year-over-year revenue slipped 3% to $20.3 billion.

On Tuesday, news broke on company plans to shutter a crude unit at a Louisiana refinery in the fall of next year. However, the report was based on unattributed sources, and the company did not issue any statement confirming or denying the report.

Another newly public pipeline limited partnership, and one that's been a strong technical performer, is Rose Rock Midstream (RRMS). The small-cap name rallied to a high of $34.58 last week, and is holding nicely above its 10-week moving average.

The stock went public at $20 in December, and closed Tuesday at $32.81. Earnings are seen growing only 4% this year, to $1.41 per share. Next year, income is expected to rise 28% to $1.80 per share.  

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