Oppenheimer downgraded Seadrill Partners LLC (NYSE: SDLP) from Outperform to Perform and removed its price target. Analyst Bernard Colson thinks a distribution cut is likely. Colson explained, "We downgrade SDLP to Perform from Outperform ahead of a possible distribution cut. As the units yield 26%, the market already prices in a significant distribution cut. Despite adequate distribution coverage, we believe management may pursue this action to reduce leverage and increase financial cushion ahead of inevitable contract rollovers in an uncertain environment (starting in 2017). This seems the most prudent course of action as it is impossible to know what new contract terms will be. In addition, with the stock yielding 26%, the market does not reward SDLP for the high payout anyway. We simply cannot advocate buying SDLP in front of a distribution cut that may be accompanied by a further exodus from the stock."
Seaport Global Securities upgraded Targa Resources Partners, L.P. (NYSE: NGLS) from Accumulate to Buy with a price target of $34. The change follows recent weakness in the stock. Sunil Sibal said, "Clearly the lower commodity price scenario laid out as one of the rationales for the proposed NGLS/TRGP merger has some investors concerned, while the base case scenario projections were also below the Street's previous expectations in 2017 and 2018. We believe that through the NGLS/TRGP merger, management is trying to buckle up for the worst case scenario and strengthen the balance sheet for a lower-for-longer scenario while also reducing the equity needs at the current higher cost of capital. This, however, comes at the cost of cutting distributions to the LP holders while also lowering the growth projections for the GP holders. The savings are primarily directed towards bringing down the leverage while spending on some of the most accretive projects continues, positioning the partnership well for ultimate recovery in commodity prices and demand for its services. We view the risk/reward as favorable at current levels for NGLS and expect the 7% arb for the merger to close as we get closer to the completion of the merger in Q1:16 and thus are upgrading it to Buy from Accumulate. We have reduced our price target to $34 from $36."
Shell Midstream Partners <SHLX.N>: Evercore ISI reinstates coverage with buy; target $45