Summary:
We are maintaining our Neutral recommendation on NuStar Energy units with a target price of $60.00, which reflects a balanced risk/reward profile. The partnership owns a high-quality, large and diverse asset portfolio. Other positive attributes include its investment grade rating and strong track record for distribution growth. We also appreciate the partnership's expectation of a year-over-year earnings increase from its pipeline segment in 2014. However, we believe these positives are already reflected in its current valuation, so there is not much upside from the current price level. We are also concerned about the partnership's high leverage. As such, we see NuStar units performing in line with the broader market.

Overview:

San Antonio, TX-based NuStar Energy, L.P. (NS) is a master limited partnership ("MLP") that engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, and the U.K. The partnership is the second largest independent liquids terminal operator in the nation. NuStar's current asset base includes 8,643 miles of pipelines and 82 terminal and crude oil storage tank facilities. The partnership's combined system has approximately 91 million barrels of storage capacity.

NuStar Energy's general partner ("GP") NuStar GP Holdings LLC was previously owned by Valero Energy (VLO), which also maintained a limited partner interest in the partnership. In the wake of the GP's IPO and a follow-on offering in 2006, Valero Energy no longer has any financial interest either in the partnership or the GP. As a result, the partnership changed its name from Valero L.P. to NuStar Energy L.P. in 2007. NuStar reports its operation under three business segments: Storage, Pipeline and Fuels Marketing.

The Storage segment (with 54 terminals in the U.S. having the total storage capacity of 53.4 million barrels) provides storage and handling services for petroleum products, specialty chemicals, crude oil, and other liquids. This segment offers tug assistance, line handling, launch service, emergency response services, and other ship services. NuStar also owns international refined product terminal operations in the Caribbean, Canada, the U.K, the Netherlands and Mexico, as well as 60 crude oil and intermediate feedstock storage tanks and related assets.

The Pipeline segment carries crude oil and other feedstocks such as gas oil, besides refined petroleum products such as gasoline, diesel, jet fuel, natural gas liquids, blendstocks, and other products. It owns 5,480 miles of refined product pipelines, along with 2,000 miles of anhydrous ammonia pipelines. This segment also consists of 940 miles of crude oil pipelines (which transport crude oil and other feedstocks such as gas oil) with crude oil storage facilities of 1.9 million barrels of capacity. .