As an investor in Valero Energy Partners, I have witnessed the recent sell-off in the MLP market. However, amidst this downturn, Valero Energy Partners has soared and proven its resilience. While other MLPs have struggled, Valero Energy Partners has emerged as a shining star in the sector.
With the refining industry gaining favor once again, I believe that Valero Energy Partners is well-positioned to outperform its peers. The company's strong performance in 2015, with impressive drop-downs and EBITDA growth, is evidence of its potential for success. Additionally, its current yield and projected annual growth rate further enhance its appeal.
With a strong partnership with Valero Energy, the largest independent refiner, and impressive Q3 earnings, Valero Energy Partners is flying high amidst the MLP sell-off.
Key Takeaways
- Valero Energy Partners has performed well during the recent MLP sell-off.
- Refining-based MLPs, like Valero Energy Partners, are expected to outperform as market conditions improve.
- Valero Energy Partners has shown strong financial performance, driven by higher quarterly revenues and increased net income.
- The acquisition of the Corpus Christi Terminal Services Business is expected to contribute significant EBITDA growth for Valero Energy Partners.
Valero Energy Partners' Resilience During MLP Sell-Off
Valero Energy Partners' resilience during the MLP sell-off demonstrates its strong performance in the face of market challenges.
Several factors contributed to VLP's ability to weather the storm.
First, as a refining-based MLP, VLP benefited from positive market conditions, such as cheap crude and natural gas feedstock, which boosted domestic refiners.
Additionally, low gasoline prices led to increased demand and robust new vehicle sales, further supporting VLP's performance.
Moreover, VLP's general partner, Valero Energy, exhibited strong financial performance, providing a solid foundation for VLP's resilience.
Looking ahead, VLP has implemented strategies for future growth, including drop-downs and acquisitions.
The recent acquisition of the Corpus Christi Terminal Services Business is expected to drive distribution growth, contributing approximately $50 million of EBITDA in its first full year of operation.
With these factors in place, VLP is well-positioned to continue its strong performance in the MLP market.
Factors Driving Valero Energy Partners' Outperformance
Despite the challenging market conditions faced during the MLP sell-off, Valero Energy Partners' strong performance can be attributed to several key factors:
- Refining-based MLPs: Valero Energy Partners benefits from positive market conditions, as domestic refiners benefit from cheap crude and natural gas feedstock. This leads to increased demand and robust new vehicle sales, driving growth for the partnership.
- Low-cost capital: Refiners like Valero Energy Partners have access to low-cost capital, allowing them to fund their growth initiatives more efficiently.
- Drop-downs: The drop-downs from Valero Energy have exceeded original forecasts, contributing to Valero Energy Partners' EBITDA growth. The recent acquisition of the Corpus Christi Terminal Services Business is expected to add approximately $50 million of EBITDA in its first full year of operation.
- Strong financial performance: Valero Energy Partners' general partner, Valero Energy, has shown strong financial performance, which has positively impacted the partnership's growth.
These factors have played a crucial role in driving Valero Energy Partners' outperformance in the MLP sector.
Impressive Q3 Earnings of Valero Energy Partners
The article highlights the impressive Q3 earnings of Valero Energy Partners. Valero Energy Partners' profitability showed significant growth during the quarter, with quarterly revenues up 84% and operating expenses falling. The net income of the company increased by a staggering 455%, and per unit net income was up 70%.
Distributable cash flow nearly doubled, and the coverage ratio was more than 2x. These strong financial results indicate the financial health of Valero Energy Partners and its ability to generate substantial returns for its investors.
Looking ahead, Valero Energy Partners' financial outlook remains positive, with the company aiming to continue growing its distribution at a target rate of about 25%. These impressive Q3 earnings contribute to the overall positive financial trajectory of Valero Energy Partners.
Growth Catalysts for Valero Energy Partners in the Near-Term
One key factor driving growth for Valero Energy Partners in the near-term is the lower gasoline prices, which are boosting demand for refiners and MLPs. This presents several growth catalysts for Valero Energy Partners:
- Drop down opportunities: Valero Energy Partners has successfully executed drop-down transactions in the past and has identified two drop-downs in 2015 that will drive distribution growth. The most recent drop-down is the $465 million acquisition of the Corpus Christi Terminal Services Business, which includes terminals that support Valero's Corpus Christi refineries. This acquisition is expected to contribute approximately $50 million of EBITDA in its first full year of operation.
- Distribution growth: Valero Energy Partners aims to continue growing its distribution at a target rate of about 25%. The drop-down transactions, along with the positive market conditions for refining-based MLPs, will support this distribution growth.
- Self-funded acquisition: The Corpus Christi Terminal Services Business acquisition was self-funded, indicating a reasonable valuation. This demonstrates Valero Energy Partners' ability to execute strategic acquisitions and expand its asset base.
- Access to debt market: While the Corpus Christi Terminal Services Business acquisition was self-funded, the next drop-down will require an equity component and access to the debt market. Valero Energy Partners' investment-grade credit rating will be utilized to access the debt market, allowing for future growth opportunities.
Key Metrics of Valero Energy Partners' Corpus Christi Terminal Services Business Acquisition
Executing a self-funded acquisition, Valero Energy Partners has successfully acquired the Corpus Christi Terminal Services Business, driving growth and expanding its asset base.
The valuation analysis of the deal shows a reasonable price/EBITDA ratio of approximately 8.7x. This indicates that the acquisition was made at a fair valuation, aligning with the company's goal of maintaining a debt-to-equity ratio of around 3.5x.
The acquisition of the Corpus Christi terminals, which support Valero's Corpus Christi refineries, is expected to contribute approximately $50 million of EBITDA in its first full year of operation.
This acquisition sets a positive precedent for future acquisitions, as Valero Energy Partners aims to continue expanding its business and growing its asset base. By maintaining an investment-grade credit rating, the company will have access to the debt market, allowing for the possibility of utilizing an equity component in the next drop-down transaction.
Valero Energy Partners' Strategies for Future Growth
Moving forward, as we discuss Valero Energy Partners' strategies for future growth, let's delve into the various initiatives they're undertaking to expand their business and increase their asset base.
1) Valero Energy Partners' expansion plans:
- Valero Energy Partners aims to continue growing their distribution at a target rate of about 25%.
- They've successfully completed two drop-downs in 2015, exceeding the original forecast and driving EBITDA growth.
- The latest drop-down, the acquisition of the Corpus Christi Terminal Services Business, is expected to contribute approximately $50 million of EBITDA in its first full year of operation.
2) Valero Energy Partners' competitive advantage:
- As the limited partner of Valero Energy, the largest independent refiner, Valero Energy Partners benefits from their strong financial performance.
- Refining-based MLPs, including Valero Energy Partners, have access to cheap crude and natural gas feedstock, leading to favorable market conditions.
With their expansion plans and competitive advantage, Valero Energy Partners is well-positioned for future growth in the MLP sector.
Frequently Asked Questions
What Is the Reason for Valero Energy Partners' Resilience During the MLP Sell-Off?
Valero Energy Partners' resilience during the MLP sell-off can be attributed to factors such as cheap crude, strong performance of domestic refiners, and access to the debt market. Additionally, the acquisition of Corpus Christi Terminal Services Business contributed to its growth.
How Do Domestic Refiners Benefit From Cheap Crude and Natural Gas Feedstock?
Cheap crude and natural gas feedstock benefit domestic refiners by reducing production costs, increasing profit margins, and improving competitiveness. This enables them to produce and sell refined products at lower prices, which boosts demand and drives growth in the refining industry.
What Is the Coverage Ratio of Valero Energy Partners' Distributable Cash Flow?
The coverage ratio of Valero Energy Partners' distributable cash flow is more than 2x. This indicates that the partnership's cash flow is more than sufficient to cover its distributions to unitholders.
What Is the Expected Contribution of the Corpus Christi Terminal Services Business Acquisition to Valero Energy Partners' Ebitda?
The expected contribution of the Corpus Christi Terminal Services Business acquisition to Valero Energy Partners' EBITDA is approximately $50 million in its first full year of operation. This adds to Valero Energy Partners' growth potential.
How Does Valero Energy Partners Plan to Access the Debt Market for Future Growth?
To access the debt market for future growth, Valero Energy Partners plans to utilize its investment-grade credit rating. This will allow them to secure favorable rates and raise the necessary funds to support their expansion plans.