(02/09/12) Growth Buzz Is Strong for 7 Energy Picks

Reliable income from the energy sector is like the best of both worlds...if you choose the right companies, writes Greg Group of Investing for Monthly Income.

This screen looks at the highest yielding unit trust securities in the energy sector. These stocks are rated 4 or 5 stars by Standard & Poor’s, meaning they are classified as buys or strong buys. The latest S&P research notes are shown below.

Energy Transfer Partners LP (ETP)
After reviewing our earnings model, we lower our 2012 earnings per unit estimate to $2.64 from $3.20, reflecting the sale of its propane operations.

On January 12, ETP announced that it had closed on the sale of propane operations to AmeriGas Partners (APU) for approximately $2.85 billion. We view the transaction positively, as it should enable ETP to focus on its natural gas liquids services.

We keep our target price of $53, based on an expected yield of 6.9% on our forward distributions projection, higher than the peer average.

Regency Energy Partners LP (RGP)
After reviewing our earnings model, we keep our fourth-quarter and full-year 2011 earnings per unit estimates of 24 cents and 63 cents, respectively.

We view as positive RGP’s efforts to expand its natural gas liquids footprint. RGP plans to invest $630 million to $680 million in 2012, vs. $373 million in 2011.

We keep our 2012 earnings per unit estimate of 99 cents and initiate 2013′s at $1.01. Due to a recent rise in peer valuation multiples, we lift our target price by $2, to $29, based on our target yield of 6.6% on estimated 12-month forward distributions, higher than its peers.

Crestwood Midstream Partners LP (CMLP)
Ahead of fourth-quarter earnings expected February 25, we lower our earnings per unit estimate to 34 cents from 39 cents and our 2011 earnings per unit estimate to $1.10 from $1.15, based on lower gathering volumes. We maintain our 2012 earnings per unit forecast of $1.68.

CMLP declared a fourth-quarter cash distribution of.49 cents, 14% higher than a year earlier. We believe that CMLP will increase its cash distributions 8% to $2.02 in 2012. We keep our 12-month target price of $32, based on expected yield of 6.3% on our forward annualized distribution estimate, higher than the peer average.

Buckeye Partners LP (BPL)
Ahead of fourth-quarter results scheduled for February 10, we maintain our earnings per unit estimate of 94 cents, vs. adjusted 66 cents. We keep our 2011 and 2012 earnings per unit forecasts of $3.37 and $3.75. In ’12, we expect BPL to raise its cash distribution by 4.1%, to $4.24 per unit.

We are encouraged by BPL’s efforts to increase waterborne refined products going into New York Harbor in order to replace volumes lost from expected refinery closures in the Northeast. We keep our target price of $75, based on a target yield of 5.6% on our forward cash distribution, below the peer average.

Kinder Morgan Energy Partners LP (KMP)
KMP posted an adjusted fourth-quarter earnings per unit of 55 cents, vs. 46 cents and above our 51-cent estimate, reflecting better than expected earnings at its natural gas pipelines and CO2 pipelines segments. In 2012, we see KMP benefiting from strong growth at its products pipelines and natural gas pipelines segments.

We keep our 2012 earnings per unit estimate of $2.34 and introduce our 2013 estimate of $2.51. We increase our target price to $99 from $96, based on a revised target yield of 5% on our estimated forward distributions, below its peer average.

Plains All American Pipeline LP (PAA)
The proposed acquisition of Canadian NGL and LPG assets from BP (BP) for $1.67 billion is expected to boost PAA’s 2012 distribution payout 8% to 9% ($3.98 currently).

Also, PAA has entered or completed four other deals for a total of $620 million, focused on South Texas oil. Separately, and before acquisitions, PAA sees fourth-quarter EBITDA exceeding guidance of $410 million by 10% to 15%, and we lift our 2011 earnings per unit forecast 22 cents to $4.90.

Based on a target yield of 5.4%, in line with peers, and a 2012 distribution growth target of 4% to 5% before acquisitions, we up our target price by $3 to $76.

Enterprise Products Partners LP (EPD)
EPD posted fourth-quarter earnings of 82 cents, vs. 33 cents and above our 56-cent estimate, reflecting better than expected results at its natural gas liquids pipeline and services segment.

Fourth-quarter cash distributions rose 5.1% to 62 cents per unit. We forecast cash distributions increasing 6% to $2.58 per unit this year.

In 2012, we see EPD gaining from strong NGL demand. We keep our 2012 earnings per unit estimate at $2.24, and increase our 12-month target price to $59 from $54, based on an expected yield of 4.4% on our forward distribution forecast—lower than its peer average—on strong NGL fundamentals.