Russ Cohen

Valero Energy Partners Dominates MLP Market

As an avid investor in the energy industry, I've been closely following the remarkable performance of Valero Energy Partners (VLP). Let me tell you, they are absolutely killing it in the MLP market.

While other MLPs have been struggling lately, VLP has been dominating the scene with their impressive performance. It's no surprise, given the favorable conditions for refining-based MLPs, in which VLP is a major player.

With their EBITDA growth poised to skyrocket and distributions projected to grow at an incredible rate, VLP is definitely a force to be reckoned with.

As the limited partner of Valero Energy, the largest independent refiner, VLP benefits greatly from their strong financial performance.

In this article, we'll explore the reasons behind VLP's success, analyze their recent earnings, and uncover the growth catalysts propelling their dominance in the MLP market.

Key Takeaways

  • Valero Energy Partners has performed well during the recent MLP sell-off, and is expected to outperform the sector as refining-based MLPs regain favor.
  • The company's strong financial performance, driven by drop-downs that exceeded forecasts, has led to significant growth in EBITDA and distributions.
  • Refining-based MLPs, like Valero Energy Partners, benefit from positive market conditions, including access to low-cost capital and cheap crude and natural gas feedstock.
  • The recent acquisition of the Corpus Christi Terminal Services Business is expected to contribute significantly to Valero Energy Partners' EBITDA and distribution growth.

Valero Energy Partners' Strong Performance

In terms of performance, Valero Energy Partners has been excelling in the MLP market, solidifying its market position and showcasing its competitive advantage.

As the limited partner of Valero Energy, the largest independent refiner, Valero Energy Partners benefits from a strong financial performance and access to low-cost capital. This has allowed the company to outperform the sector, particularly in the refining-based MLP space, which has seen favorable market conditions.

With drop-downs in 2015 exceeding expectations and driving EBITDA growth, Valero Energy Partners has demonstrated its ability to generate strong revenues and control operating expenses. Additionally, the company's quarterly earnings for Q3 displayed impressive results, with a significant increase in net income and distributable cash flow.

These positive outcomes, combined with Valero Energy Partners' commitment to continue growing distributions, make it a dominant player in the MLP market.

Reasons for Valero Energy Partners' Outperformance

Due to positive market conditions and strong financial performance from its general partner, Valero Energy, Valero Energy Partners has outperformed the sector as a result of being a refining-based MLP. The following reasons contribute to Valero Energy Partners' outperformance:

  1. Positive market conditions: Refining-based MLPs benefit from cheap crude and natural gas feedstock, leading to lower production costs and increased profitability.
  2. Rising demand: Low gasoline prices have resulted in higher demand and robust new vehicle sales, which positively impact refiners and MLPs.
  3. Access to low-cost capital: Refiners have access to low-cost capital, allowing them to invest in growth opportunities and drive performance.
  4. Strong financial performance: Valero Energy Partners' general partner, Valero Energy, has shown strong financial performance, which has translated into favorable results for Valero Energy Partners.

These factors combined have positioned Valero Energy Partners to outperform its peers in the MLP market.

Impressive Q3 Earnings for Valero Energy Partners

Continuing from the previous subtopic, it's worth noting the impressive Q3 earnings of Valero Energy Partners. The company reported a significant increase in quarterly revenues, with an 84% jump, while operating expenses decreased. Net income soared by an impressive 455%, and per unit net income saw a 70% rise.

Distributable cash flow nearly doubled, and the coverage ratio was more than 2x, indicating a strong financial performance. Valero Energy Partners also announced a modest increase in the quarterly distribution.

With such impressive financial performance, it's evident that Valero Energy Partners is dominating the MLP market and delivering value to its investors. These Q3 earnings highlight the company's ability to capitalize on market conditions and generate substantial returns.

Near-Term Growth Catalysts for Valero Energy Partners

One significant factor driving Valero Energy Partners' growth in the near term is its access to low-cost capital. This allows the company to pursue drop down acquisitions that contribute to distribution growth.

Here are four near-term growth catalysts for Valero Energy Partners:

  1. Drop-down acquisitions: Valero Energy Partners has a strong relationship with its general partner, Valero Energy, which allows for the transfer of assets from the parent company to the MLP. These drop-down acquisitions provide immediate growth opportunities for Valero Energy Partners.
  2. Distribution growth: With its access to low-cost capital and the successful execution of drop-down acquisitions, Valero Energy Partners is well-positioned to increase its distributions to unitholders. The company aims to continue growing its distribution at a target rate of about 25%.
  3. Corpus Christi Terminal Services Business acquisition: The recent acquisition of the Corpus Christi Terminal Services Business will drive distribution growth for Valero Energy Partners. This $465 million deal includes terminals that support Valero's Corpus Christi refineries and is expected to contribute approximately $50 million of EBITDA in its first full year of operation.
  4. Debt market access: As Valero Energy Partners continues to pursue growth through drop-down acquisitions, access to the debt market will be essential. The company's investment-grade credit rating will enable it to access the necessary capital to fund future acquisitions and support its growth strategy.
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Deal Metrics of Valero Energy Partners' Acquisitions

Valero Energy Partners' acquisitions are characterized by strong deal metrics that contribute to the company's dominant position in the MLP market.

A valuation analysis of their recent acquisition, the Corpus Christi Terminal Services Business, reveals a price/EBITDA ratio of approximately 8.7x, indicating a reasonable valuation.

This self-funded acquisition is expected to contribute around $50 million of EBITDA in its first full year of operation.

In order to continue their growth strategy, Valero Energy Partners will require access to the debt market for their next drop-down, which will have an equity component.

Fortunately, their investment-grade credit rating will enable them to access the debt market easily.

Valero Energy Partners aims to maintain a debt-to-equity ratio of approximately 3.5x, ensuring a healthy balance between debt and equity in their acquisitions.

Valero Energy Partners' Dominance in the MLP Market

The dominance of Valero Energy Partners in the MLP market is evident through their strong performance and strategic acquisitions. They've consistently outperformed the sector, and their market share continues to grow.

Valero Energy Partners' competitive advantage lies in their status as the limited partner of Valero Energy, the largest independent refiner. This affiliation allows them to benefit from positive market conditions, such as cheap crude and natural gas feedstock, as well as low gasoline prices and robust new vehicle sales.

Additionally, their strong financial performance and access to low-cost capital further solidify their position in the MLP market. With their focus on growth and a target rate of about 25% for distribution growth, Valero Energy Partners is well-positioned to maintain their dominance in the MLP market.

Frequently Asked Questions

How Does Valero Energy Partners' Performance Compare to Other MLPs in the Market?

Valero Energy Partners' market performance is strong compared to other MLPs. Its stock analysis shows consistent growth, driven by positive market conditions and strong financial performance. It outperforms with a high coverage ratio and aims to continue growing its distribution.

What Factors Contribute to Valero Energy Partners' Outperformance in the Sector?

Factors contributing to Valero Energy Partners' outperformance in the MLP sector include positive market conditions, access to low-cost capital, and Valero Energy's strong financial performance. These competitive advantages drive the company's success.

How Did Valero Energy Partners' Q3 Earnings Compare to Previous Quarters?

Valero Energy Partners' Q3 earnings showed significant growth compared to previous quarters. Revenues increased by 84% and net income rose by 455%. This strong performance can be attributed to various revenue sources and favorable market conditions.

What Are the Main Growth Catalysts for Valero Energy Partners in the Near-Term?

The main growth catalysts for Valero Energy Partners in the near-term are lower gasoline prices boosting demand, and two drop-downs in 2015 that will drive distribution growth. These factors contribute to the positive performance of Valero Energy Partners.

How Does Valero Energy Partners' Debt-To-Equity Ratio Compare to Industry Standards?

Valero Energy Partners' debt-to-equity ratio is in line with industry standards. This indicates a balanced financial structure. When comparing Valero Energy Partners' performance to the MLP market, its strong growth catalysts further solidify its dominance.

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