I know that the energy sector has been dogging the broader market lately, but I consider the pullback a massive buying opportunity for quality pipeline plays.
Consider Tallgrass Energy Partners (TEP), which pays a 3.8% dividend, is enjoying double-digit sales and earnings growth and has a massive pipeline expansion project in the works. What’s not to love about TEP?
Company Overview
Tallgrass Energy Partners is a master limited partnership that offers natural gas transportation and storage services in the Rocky Mountain and Midwest regions through its Tallgrass Interstate Gas Transmission and Trailblazer Pipeline systems.
In addition, Tallgrass Energy Partners provides natural gas processing in Wyoming. As an MLP, TEP is not subject to income tax, but it is required to pay out the bulk of its profits to its unit holders.
Today, TEP hiked up its quarterly distribution to 41 cents, a 38% increase over a year ago, which is the fifth consecutive quarter of increases. At current prices, TEP pays a 3.8% dividend.
Earnings Outlook
Tallgrass Energy Partners is expected to report quarterly sales and earnings around Nov. 5. The analyst community currently forecasts earnings of 28 cents on $95.19 million in revenue. Earnings and revenue at those numbers represent a healthy 50.5% annual sales growth and 64.7% earnings growth, well above the 13.9% industry average. Looking ahead to fiscal 2015, Tallgrass Energy Partners’ prospects remain bright, with 36.9% forecasted sales growth and 85.9% earnings growth (compared with the 17.5% industry average).
One of the key drivers of growth is Tallgrass Energy Partners’ continued efforts to expand the Pony Express crude oil pipeline. The expansion is being considered for Denver-Julesburg Basin in northeast Colorado, as well as the Niobrara and Codell Foundations in northeast Colorado and southwest Wyoming. Pony Express may also expand in Guernsey, Wyoming, to transport more Bakken Shale crude oil. The current expansion plans could increase capacity by 400,000 barrels per day and be operational in the second half of 2016.
Current Ratings
I added TEP to my screening system last May — after the firm had four quarters’ worth of earnings data under its belt. In the past months, TEP stock has remained at an “A” due to a combination of solid fundamentals (“B-rated” Fundamental Grade) and a favorable risk-to-return ratio (“A-rated” Quantitative Grade).
On the fundamentals side, TEP has just three areas for improvement: Earnings growth (C), return on equity (C) and cash flow (D). However, my expectation is that these will improve once the latest quarter’s results are released in a few weeks. As for the other five fundamentals, TEP earns top marks: Sales growth (B), operating margin growth (A), earnings momentum (A), earnings surprises (A) and analyst earnings revisions (A). I consider TEP an “A-rated buy.”
More From InvestorPlace
- 3 Robust Stocks Worth the High Prices
- Count on Jamba to Juice Your Portfolio
- 4 ETFs to Expose Your Portfolio to Emerging Markets
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
