Ladenburg Analysts Are Bullish On DCP Midstream, Waiting For Future Catalysts To Find An Entry Point

DCP Midstream Partners, LP (NYSE: DPM) is positioned strategically to benefit from a market recovery, Ladenburg’s Richard A. Verdi said in a report. He reinitiated coverage of the company with a Neutral rating and a price target of $36, saying that the stock appears fairly valued “until future potential catalysts come to fruition.”

Under its 2020 strategy, DCP Midstream is likely to continue to benefit from its roughly $200mm capex and significant cost cutting initiatives. These could translate to “$120mm in annualized contract realignment uplift and roughly $80mm annualized margin improvement from better reliability,” analyst Richard Verdi mentioned.

Market Recovery Benefits

DCP Midstream enjoys continued support of its sponsors. The company’s relationship with DCP Midstream LLC could offer opportunities for potential acquisitions on economic terms, possible joint ventures and a source of capital. The LLC has assets of about $8B, which it is converting to fee-based assets.

“This translates to DCP expecting 2016 margins to be roughly 75% fee-based before increasing to 80% in 2017,” Verdi wrote.

DCP Midstream is also well positioned to benefit from an increase in ethane demand. “The strategic asset position will allow DCP’s NGL pipelines to benefit from volume/margin uplift of roughly $75-100mm with gathering and processing contracts following suit,” the analyst stated.

The potential benefits already seem to be recognized by investors, and the stock seems fairly valued with less than 2 percent potential upside to the price target. Verdi recommended investors to “wait for a more favorable entry point.”

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