RGNC Regency Energy Partners LP - Common Units Representing Limited Partner Interests (MM)

We are maintaining our long-term Neutral rating on Energy Transfer Partners L.P. (ETP) based on its growth momentum, which is aided by acquisitions and joint ventures, strong volume expansion and modest price increases. These positive aspects are somewhat diluted by the challenging macro environment, weak natural gas fundamentals and cost overruns on development projects.

In the first quarter of 2011, Energy Transfer gave a disappointing performance, with earnings per unit of 71 cents coming in below the Zacks Consensus Estimate of $1.03 and 74 cents in the year-ago quarter. Revenue of $1,687.6 million was down 9.9% year over year and missed our projection by 19.1%.

The partnership also reported lower distributable cash flows of $337.1 million in the quarter (compared with $384.6 million in the prior-year quarter), hurt by collapsing gas prices. Additionally, market turmoil resulting from issues such as the recent subprime crisis, which hindered access to debt/equity markets, will likely impact Energy Transfer’s business prospects.

With acquisitions playing a major role in Energy Transfer’s growth profile, failure on the part of management to complete accretive transactions in a timely manner might place the partnership in a disadvantageous position.

We believe these negative sentiments are counterbalanced by Energy Transfer’s geographically dispersed asset mix that positions it well to compete in the natural gas midstream and transportation & storage businesses. The partnership has a significant market presence in each of its operating areas, which are located in major natural gas-producing regions of the U.S.

Energy Transfer’s recent collaboration with Regency Energy Partners L.P. (RGNC) to acquire LDH Energy Asset Holdings shows a lot of promise. We believe the acquisition will broaden the partnership’s asset base with strong midstream services and transportation and storage businesses apart from providing additional consistent fee-based revenues in the coming months.

Further, we believe Energy Transfer’s two prominent pipeline projects -- Fayetteville Express Pipeline and the Tiger Pipeline -- which came online several months ahead of schedule and significantly below budget, will ultimately translate into significant distributable cash flows for the partnership’s unitholders in 2011 and in subsequent years.

Dallas, Texas-based Energy Transfer is a master limited partnership that competes with other players such as Enterprise Products Partners L.P. (EPD), Kinder Morgan Energy Partners L.P. (KMP) and Plains All American Pipeline L.P. (PAA).

 
ENTERPRISE PROD (EPD): Free Stock Analysis Report
 
ENERGY TRAN PTR (ETP): Free Stock Analysis Report
 
KINDER MORG ENG (KMP): Free Stock Analysis Report
 
PLAINS ALL AMER (PAA): Free Stock Analysis Report
 
REGENCY ENERGY (RGNC): Free Stock Analysis Report
 
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