Chesapeake Midstream Partners, L.P. - Growth & Income
05 March 2012 - 11:00AM
Zacks
Chesapeake Midstream Partners, L.P. (CHKM) offers investors
double-digit earnings growth and a juicy 5.4% yield at a reasonable
price.
The partnership also recently delivered better than
expected fourth quarter results, prompting analysts to revise their
estimates higher for 2012. It is a Zacks #2 Rank (Buy).
Master Limited Partnership
Chesapeake Midstream Partners is a master limited
partnership that is primarily focused on natural gas gathering.
This is the first segment of midstream energy infrastructure that
connects natural gas produced at the wellhead to third-party
takeaway pipelines.
The partnership generates revenue under long-term,
fixed-fee contracts, which has allowed it to distribute steadily
increasing cash to investors since it went public in 2010.
It has a market cap of $4 billion and is
headquartered in Oklahoma City.
Fourth Quarter Results
Chesapeake Midstream Partners delivered better than
expected fourth quarter results on February 28. Earnings per unit
came in at 46 cents, beating the Zacks Consensus Estimate by 2
cents.
Adjusted revenue was up 44% year-to-year to $169
million, ahead of the Zacks Consensus Estimate of $156 million.
Adjusted distributable cash flow (DCF) surged 61%
over the same period to $78.9 million, resulting in a healthy
distribution coverage ratio of 1.34.
5.4% Yield
As an MLP, Chesapeake Midstream must pay out the
majority of its earnings to unitholders to avoid paying tax on that
income. It currently yields a stellar 5.4%.
The partnership has raised its distribution every
quarter since it went public in 2010, including a 16%
year-over-year increase in January.
Estimates Rising
Earnings estimates have been moving higher
following the partnership's solid Q4 results. It is a Zacks #2 Rank
(Buy).
Based on consensus estimates, analysts expect
strong earnings per unit growth over the next few years. The Zacks
Consensus Estimate for 2012 is now $1.58, representing 15% growth.
The 2013 consensus estimate is 16% higher at $1.82.
And this growth should drive continued increases in
distributions over the next several quarters.
Valuation
Valuation looks reasonable for CHKM with shares
trading at 18x forward earnings, a discount to the industry median
of 20x.
Its price to tangible book ratio is just 1.0, well
below the peer group multiple of 3.6.
The Bottom Line
With a stellar 5.4% yield, rising earnings
estimates, strong growth projections and reasonable valuation,
Chesapeake Midstream offers investors attractive total return
potential.
Todd Bunton is the Growth & Income Stock
Strategist for Zacks Investment Research and Co-Editor of the
Reitmeister Value Investor.
CHESAPEAKE MIDS (CHKM): Free Stock Analysis Report
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