Buckeye Partners, L.P. (NYSE: BPL): A Brief Introduction
“Buckeye Partners, L.P. is a publicly-traded master limited partnership that provides mid-stream energy logistics services. Buckeye owns and operates one of the nation’s largest independent petroleum products common carrier pipeline networks providing refiners, wholesalers, marketers, airlines, railroads and other commercial end-users with dependable, all-weather transportation of refined petroleum products. The Partnership transports refined products by pipeline principally in the Northeastern and upper Midwestern states. Buckeye also operates and maintains pipelines that it does not own, primarily in the Gulf Coast region, under contracts with major oil and petrochemical companies. The combination of experienced and responsive professional staff, technical expertise and modern transportation facilities has earned the Partnership a reputation for providing high-quality, safe, reliable and efficient pipeline transportation services.”
What do fundamentals say about the organization?
The stock price chart of Buckeye Partners has started to show a bullish trend in the ultimate month of 2017 after a long bear run. Therefore, investing in the stock seems profitable in the short run. Now the question is: Will the bullish trend continue for the next 12 months? What will be the stock price after a year from now? To get the answers to these questions we need to analyze the financials of the entity.
DuPont Analysis of Buckeye Partners
The table below shows the last twelve months ROE of BPL and its four peers.
Buckeye Partners ranks 2nd in the table based on ROE. The cost of capital (Kc) has been calculated as 9% p.a. which we will read in the later part of the article. Therefore, the return on equity of BPL being higher than its cost of capital indicates the presence of opportunities of generating net present value for the shareholders. Decomposing ROE, we get net profit margin, asset turnover, and equity multiplier. The assets turnover ratio 0.40 indicates that BPL is highly effective in its industry in utilizing its assets. The equity multiplier of BPL indicates that it is the least leveraged entity among its peers. It means that BPL is depending more on its equity than debts to finance the purchase of its assets.
Analysis of Free Cash Flows
If we look at the past financial statements of BPL as filed with SEC, we would find that the financials have grown over the years. The liquidity ratios have witnessed a sharp rise over the years while the figures of profitability ratios have grown gradually. This certainly makes us feel tempted to invest in the stocks of the enterprise. But, if we have a look at the stock prices for the last few years, we would find that the prices have been bearish in the past few years. Now, at this stage, we might refrain from going long on BPL. Well, the better way to analyze the financial picture would be to determine the intrinsic value per share of the entity. This would let us know whether Buckeye Partners is an overvalued entity or an undervalued one. If it happens to be undervalued, we can confidently invest our money in this enterprise letting our wealth grow with time.
We have calculated the intrinsic value of the entity by discounting its estimated free cash flows (FCFFs). We have computed the future free cash flows in three stages. The 1st stage is five years and the growth rate of FCFFs is considered to be 12% p.a. The next stage is of the same duration, but being more conservative this time, we have assumed FCFFs to grow at 7% p.a. An enterprise keeps growing its whole life, but the more it expands, the lesser the growth rate becomes. So, in the final stage, FCFFs are assumed to grow at 3% p.a. for the rest of its life.
Computation of weighted average cost of capital
The estimated free cash flows are discounted at the cost of capital of 9% p.a. The hurdle rate is determined by computing the weighted average of cost of equity and after tax cost of debt. The cost of debt after tax happens to be 4.61% p.a. as computed from the entity’s annual report of 2016. The cost of equity is calculated by the Capital Asset Pricing Model. To determine the cost of equity, we have considered risk free rate of return to be the latest interest rate on treasury bills for ten years in the US. The average of last 50 years annual return on NYSE Composite Index has been considered to be the market rate of return. We have considered the beta of the stock as 1.29. The weighted average cost of capital (WACC) comes to 8% p.a. Adding 1% to the computed figure for adjusting risk, we finally get a discount rate of 9% p.a.
Free Cash Flows for equity
Deducting net debt from the present value of free cash flows, we get free cash flows for equity (FCFEs) which is the intrinsic value of the enterprise. Lastly, dividing the present value of FCFEs by the outstanding no. of shares, we get intrinsic value per share to be $60.69. The intrinsic value computed considering rational assumptions may not reflect the true value of the organization. Therefore, assuming movement of 10% on both sides, the intrinsic value per share is assumed to lie within the band of $66.75 and $54.62.
How are insiders playing this stock?
Source: Tino IQ
Before we arrive at our 12 months stock price prediction, let us talk about the activities of insiders. The above screenshot shows that Joseph Sauger has sold his stocks in BPL twice in a week in December. The market of BPL has been bearish since August 2014. It started to show bullish run from December 2017. The insider’s activities can make anyone think that the price of BPL’s stock would go down further. Although the stock price went down a bit after the insider’s activities it started making a rise again. This goes to show that the insider’s activities could not affect the bull-run that has commenced after ages. Apart from that, the short interest has fluctuated throughout the picture but little has it affected the upward movement of the stock price.
Price of the stock of Buckeye Partners after a year from now
The price of BPL was $71.01 at 2013 end while it came down to $66.16 at the end of 2016. The share price has gone further down to $45.93 during 30th November 2016. The market for BPL has recently started to show the bullish trend as said earlier. The current market price per share of Buckeye Partners is $48.60 which lies below the intrinsic value band. Therefore, this is to say that the organization is undervalued and an investor should go long on its shares. We estimate that the stock price of Buckeye Partners would reach at least the $60 mark after a year from now.
Do you believe in our analysis? If, your answer is yes, why don’t you invest in BPL and observe your portfolio grow with time?
If your answer is no, why don’t you have a look at what Tino IQ has to say about the price movement of the stock in the short run?
Short-term vision for Buckeye Partners
In the near term, Tino IQ is expecting stock price to go to $49.31 by January 3rd
Source: Tino IQ
Using Einstein algorithm, Tino IQ has predicted for 19th December 2017 that the stock price of Buckeye Partners has a 96% probability of reaching $49.31 in two weeks time. The algorithm has detected artificial manipulation of the stock which is nothing but an intentional attempt of interfering with the free market operation of the stock. Such attempt is made by a big player for creating artificial or misleading appearances with respect to the price of the stock in the market. To know more about market manipulation you can click the links given below.
1) Market manipulation
2) How The Big Players Manipulate The Stock Market
Why is Tino IQ confident about its prediction?
The above table shows a few predictions made by Tino IQ on the stocks of different companies in the recent past. These two weeks predictions were meant for going long on these shares which subsequently met with 100% success. If you want to have a look at more historical predictions by Tino IQ to satisfy yourself, you can click here.
What does Quantum Analysis have to say about BPL?
Every day as many as ten algorithms are run through an entire set of securities being traded on NYSE and Nasdaq. Out of these ten algorithms, a few come up with predictions (for one week or two weeks ahead). The stock prediction by any algorithm includes results like prediction date, current price, target price, and the probability of reaching the target price.
In case of the stock of BPL, the algorithm Einstein has been the most effective over the years in making successful predictions. Therefore, the same has been chosen to make the current prediction for the said stock.
Source: Tino IQ
Analysis of price actions of BPL’s stock substantiates Tino IQ’s prediction
The screenshot below shows Tino IQ’s Technical Analysis on the said stock for the last three days before arriving at its latest two-week prediction. While the trend indicator MACD has given a sell signal based on the bullish trend, the momentum indicator RSI and volume indicator CMF have remained speechless. But, having another look at the image we get clear buy signals from the rests indicating the market of BPL will remain bullish in next couple of weeks.
Source: Tino IQ
So, what are you waiting for? If you want to earn quick profits, you can invest your money in BPL for the next two weeks.
Do you have a high-risk appetite or are you risk averse?
Source: Tino IQ
“Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other.”
A positive correlation between two stocks means they are either going up or down at the same time. It means that, if they are bullish, we can opt for investing in both of them for earning more in monetary terms.
If two stocks are negatively correlated, it means that they both are moving in the opposite directions. Going long on one of them can be risky as its price may decline instead of going up. Therefore, if we include the other stock too in our portfolio, it acts as a hedging instrument by reducing the degree of risk in decline in the price of the former.
The above screenshot reflects a strong degree of positive correlation existing between the weekly stock price of Buckeye Partners and that of its peer entities. The image states that like BPL, the three stated peers are also bullish in the short run. It means that if you don’t want to buy a stock of BPL for a very short term, you can invest in HFC, OMP or OXY instead. If you are a risk lover, you can also go long on the bullish stocks of other industries along with including BPL in your portfolio.
Well, it might also happen that you would like to go buy a stock of BPL but afraid of its price to fall in the future. So, if you are risk-averse, you can go long on BPL along with a stock which has shown a negative correlation with the same in the recent past. Adding the healthcare stock with a declining price, in the above screenshot, would act as a hedge to your portfolio.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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