Crumbling Boardwalk Empire Doesn't Shake MLP Foundation
Though midstream energy's shifting fundamentals challenge Boardwalk, these same changes create opportunities for the majority of pipeline operators we cover.
Boardwalk Pipeline Partners' (BWP) sharp sell-off last month prompted many questions regarding the stability and risk profile of master limited partnerships and midstream firms more broadly. In addition to cutting our fair value estimate for Boardwalk nearly in half, we cut its moat rating from wide to none and raised its uncertainty rating from low to high. Do other MLPs deserve the same re-evaluation?
We contend that Boardwalk is an isolated case, the product of fundamental changes in gas flows caused by the emergence of Marcellus shale gas, a constrained balance sheet, and the inability of growth projects to replace cash flows lost to declining pipeline utilization and lower rates on contract renewals. While virtually all gas pipelines in the eastern United States must contend with the impact of Marcellus gas, Boardwalk's balance sheet and project slate are company-specific problems that do not impugn peer companies. Midstream energy is in the midst of interesting times, and while shifting fundamentals challenge Boardwalk, these same changes create opportunities for the majority of pipeline operators we cover. Despite our re-rating of Boardwalk, our moat and uncertainty ratings for the remainder of our midstream coverage remain intact.
Jason Stevens does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.