(By Balaseshan) UBS Securities analyst Ronald Barone upgraded his rating on shares of Western Gas Partners LP (NYSE:WES) to "Buy" from "Neutral" based on fee-based growth, with $48 price target.
Given WES's recent relatively stable unit price versus peers and macro uncertainties, Barone views its recent offering of 5 million units as opportunistic. With more than $200 million in cash on hand and ample liquidity after last week's debt offering (terming out existing debt), WES remains in a strong financial position.
The analyst also noted Moody's recent rating of WES as an investment grade credit - the second agency to do so. Lastly, he noted that WES has not gone longer than 4.5 months without a dropdown/acquisition after an equity issue, which he believes could provide a catalyst to units.
Barone believes the combination of weather, downstream maintenance work and some minimal exposure to keep-whole contracts represent headwinds to 2Q estimates.
The analyst believes these factors are likely to dissipate in the second half of 2012 and should not distract from WES's longer-term growth story; he would view weakness as a further buying opportunity. WES has achieved year-over-year double-digit distribution growth since 4Q-2009 - a trend he forecasts would continue.
The analyst does not expect any of the above-mentioned hurdles to meaningfully impact distribution growth in the second half of 2012, and recent public management commentary indicates comfort with 2012 guidance of up 16%-20% distribution growth.
WES's 96% fee-based/fixed-price margin and strong distribution coverage provide good visibility into growth despite commodity price volatility.
WES is trading down 0.25% at $43.05 on Thursday.