Valero Energy Investment Thesis On Track, Says Credit Suisse

After Monday's market close, Valero Energy Partners LP VLP announced that it had acquired Meraux and Three Rivers Terminal Services Business from Valero Energy Corporation VLO for $325 million.

Credit Suisse’s Bhavesh Lodaya maintains an Outperform rating on Valero Energy Partners, with a price target of $55.

The Acquisition

“We like the fact that the transaction was priced at ~8.3x EBITDA multiple, better than our 8.5x est. and come with 10-yr minimum volume commitments covering 85 percent of expected throughput,” Lodaya mentioned.

The analyst believes these assets support the company’s Meraux and Three Rivers refineries ad comprise of a total of 86 tanks and 6.15 mbbls of storage capacity for refined products, intermediates and crude.

Related Link: Morgan Stanley's Quick Comments On Valero Energy's Recent Acquisitions

Guidance Surpassed

Following the $240 million acquisition of the McKee assets in Q2:16, Valero Energy Corporation has dropped down $565 million to Valero Energy Partners in 2016, beating the low end of the guidance range of $500–$750 million for the year.

“We continue to model the high end of guidance given the flexibility allowed by VLPs strong coverage and balance sheet, and as such expect a 4Q16 drop of ~$185mm at 8.5x,” Lodaya stated, while adding, “The next catalyst will likely come from the next dropdown which may include fresh debt and an investment grade rating.”

The analyst expects additional upside, excluding dropdowns, to come from Valero Energy Partners taking on capex projects and joint ventures at its own level.

Full ratings data available on Benzinga Pro.