Shares of midstream company NuStar Energy L.P. (NYSE:NS) fell after an analyst at Credit Suisse downgraded NuStar from neutral to underperform. Is now the time to bail? Or did the 7% drop in price create a buying opportunity? Let’s take a closer look at NuStar and the reasons behind the downgrade.
A quick look at NuStar
The San Antonio-based master limited partnership has operations in the U.S., Canada, and Mexico, but unlike almost all other midstream companies, also offers investors international exposure with assets in the Netherlands, the U.K., the Caribbean, and Turkey.
The company’s assets include 87 terminals with about 96 million barrels of storage capacity, and 8,634 miles of crude oil and refined products pipelines. Its best performing business unit is its transportation segment, which generated $47.95 million in operating income for the fourth quarter of 2012.
By most accounts, NuStar Energy L.P. (NYSE:NS) did not have a great fourth quarter. In an effort to move more toward fee-based revenue — which is reliable and correlates to a reliable distribution — the partnership is going through a bit of a restructuring. It sold its asphalt and fuels refinery in San Antonio and is refocusing on storage and transportation business, specifically targeting the Eagle Ford Shale for acquisition and organic growth opportunities.
The Credit Suisse downgrade comes on the heels of a NuStar Energy L.P. (NYSE:NS) SEC filing that intimates TexStar wants out of the second half of its $100 million deal to sell assets to NuStar. After successfully acquiring a crude oil pipeline, gathering, and storage assets, the pending acquisition of a natural gas liquids pipeline is now up in the air, and NuStar is evaluating its legal options. According to Bloomberg, Credit Suisse analyst Brett Reilly fears a failure to acquire these TexStar assets will force NuStar to cut its distribution.