Crestwood Equity Partners (CEQP)

We’ll start with Crestwood Equity, an energy company heavily involved in the midstream segment of the industry. Crestwood has a wide-ranging network of assets, in the Marcellus shale of New York-Pennsylvania and into the Great Lakes region, in the Powder River and Williston basins of Wyoming, Montana, and North Dakota, in the Delaware basin of Texas-New Mexico, and in several states of the Southeast. The company’s assets work in collection, transport, and storage of hydrocarbons, mainly crude oil, natural gas, and natural gas liquids.

Crestwood reported mixed results in its recent 3Q22 report. The company showed a top line of $1.57 billion, up 27% year-over-year, while at the bottom line the diluted EPS loss of 64 cents was an improvement over the $1.03 loss reported in the year-ago quarter – but missed the forecast of a 19-cent gain.

Overall, Crestwood’s stock has performed well this year. The company’s shares are up more than 9% year-to-date, far outpacing the 18% loss in the S&P 500 over the same period.

Looking at the dividend, we find that Crestwood is in a solid position that will benefit shareholders. The company reported a 53% year-over-year gain in distributable cash flow (DCF) for Q3, up from $85.8 million to $131 million. The DCF supported the common stock dividend, which was declared in November for $0.655 per share, up 5% y/y. At the annualized rate of $2.62, the dividend yields 9.35%, far above the average among S&P-listed firms and more than 2 points above the current rate of inflation.

In his coverage of this energy sector dividend champ, Truist’s 5-star analyst Neal Dingmann notes the company’s potential for increased cash flow – and consequent increased capital returns – going forward as an incentive to buy.

“Crestwood’s focus the next few quarters will be to continue to integrate and optimize its recent attractive assets, which we forecast will deliver notable earnings and cash flow upside next year. We believe the company now has a strategic portfolio in leading US plays with diversified G&P infrastructure assets along with solid accompanying storage and logistics,” Dingmann opined.

“We forecast CEQP to generate well over $600mm of 2023 distributable cash flow versus just over $500mm this year. We estimate the company will hit its 3.5x long term leverage target by mid-2023 potentially allowing for more shareholder return thereafter,” the analyst added.

Dingmann’s comments support his Buy rating on the stock, while his $35 price target implies a 25% upside potential for the coming year. Based on the current dividend yield and the expected price appreciation, the stock has ~34% potential total return profile.

Dingmann’s take is not an unusual one on Wall Street; based on 4 additional Buys, the stock boasts a Strong Buy consensus rating. Moreover, the $34.40 average target implies the shares will be changing hands for ~23% premium a year from now.