(By Balachander) Northern Tier Energy LP (NYSE: NTI) shares were downgraded to "Hold" from "Buy" by Deutsche Bank analyst Paul Sankey.
Variable payout Mid Con refining MLP Northern Tier (NTI) reported clean earnings of $1.42/unit vs DB estimate at $1.43 and consensus of $1.64.
The excellent quarterly profitability implies exceedingly cheap valuation, so that quarterly adjusted EBITDA of $250 million represents annualized EV/EBITDA of 2.2x, while the $1.48/unit distribution for only 2 months since the IPO implies 35 percent annual yield, Sankey said.
"However, we see a seasonal sequential decline in earnings in Q4 followed by typically-weak Q1 and costly turnarounds, and on a normalized mid-cycle distribution basis the stock looks fully valued," the analyst wrote. "We are in a cyclical short term negative stance on refining. Downgrade to HOLD."
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"Adding to our discomfort as short term bears, the dreaded refining MLP drum is being beaten, with the latest theme being that having spun out all their midstream assets, more refiners should follow Northern Tier and more recently Alon's lead and form variable payout refining MLPs," the analyst said.
Sankey has a price target of $25 on the stock.
NTI shares, which have been trading in the 52-week range of $13.00 to $25.80, tumbled 7.92 percent to trade at $22.56 on Wednesday.