Energy MLPs fared well amidst inflation and flatter market with ~3% return YTD – JPM

Analysts at JP Morgan praised Energy MLPs on Tuesday for delivering ~3% return year-to-date, even amidst a choppy market as a result of inflation and interest rate concerns, and said fundamentals remain broadly constructive with regards to oil prices supporting production growth.

JP Morgan analysts, on midstreamers, had expressed concerns of lower commodity prices while heading into fourth quarter earnings but to their surprise were proved otherwise. Companies issued better-than-expected outlooks as inflation indexed margin escalators more than offset price weakness and higher costs.

The analysis highlighted Energy Transfer (ET) and Enterprise Products Partners (EPD) as the brokerage’s top two picks.

JPM analysts also noted that downstream trends seemed to appear “generally durable” across earnings in the report.

Targa Resources (TRGP) came in as JP Morgan’s midstream favorite given its Permian wellhead to export value chain. On Cheniere Energy (LNG), the brokerage said its long-term contracted cash flows are “undervalued”.

Magellan Midstream Partners (MMP) and MPLX LP (MPLX) were also included in the analysis for their “attractively priced cash flow stability”, even with their downstream exposures. MPLX was raised to an investment rating of “overweight” from “neutral”.

Crestwood Equity Partners (CEQP) was downgraded to “neutral” from “overweight”, citing the company’s weak execution and lower financial flexibility.