With a juicy distribution yield of 5.3%, a business model focused on operational efficiencies and attractive acquisitions/growth projects, Genesis Energy L.P. (GEL) provides investors with a steady, predictable income stream.
This Zacks #2 Rank (Buy) diversified midstream energy operator has raised its quarterly payout 29 times in a row now. Plus, earnings growth is expected to be strong in 2012 and 2013, based on the solid fixed margin businesses and limited commodity price exposure.
Acquisitions Drive Margin, DCF
Genesis Energy reported third quarter earnings per unit - excluding a one-time tax benefit - of 29 cents on November 6, matching the Zacks Consensus Estimate but beating the year-ago earnings by 7%.
Total segment margin for the three months ended September 30 rose 25% year over year to $65.9 million. This was due largely to higher crude oil tariff revenues and the acquisition of interests in Gulf of Mexico oil pipelines from Marathon Oil Corp. (MRO) in January. Results were further helped by the purchase of a black oil barge transportation business in August 2011, and higher traffic handled by Genesis Energy's enlarged trucking and barge fleets.
More importantly, distributable cash flow (:DCF) - an indicator of cash paid for distribution to unitholders - rose approximately 24% year over year to a record $45.9 million, providing a healthy 1.20x distribution coverage.
Consistent History of Increasing Distributions
Genesis Energy has established a track record of consistent distribution growth. On October 10, the partnership raised its third quarter 2012 cash distribution to 47.25 cents per unit ($1.89 per unit annualized), representing an increase of approximately 2.7% sequentially and 10.5% year over year. Importantly, the latest payout marks the 29th consecutive quarterly distribution hike by the pipeline operator, of which 24 increases have been 10% or more year over year.
Genesis Energy's announced distribution boost is in sync with its goal of delivering disciplined growth to unitholders. The partnership boasts of a consistent and improving financial policy with high distribution coverage.
Earnings Estimates
The Zacks Consensus Estimate for 2012 is $1.23, which is up nearly 12% in the past 2 months and represents 28% growth over 2011. The Zacks Consensus Estimate for next year is $1.53, up 15% in the same timeframe and growing 25% year over year.
Valuation Picture
Valuation looks reasonable for Genesis Energy. The stock is going for about 28.9 times forward estimates, same as the peer group average. Its price-to-sales (P/S) ratio of 0.8 is also essentially in-line with what similar firms offer.