First Look at NuStar Energy L.P. (NS)

A friend asked me to take a first look at NuStar Energy L.P. (NS).  It’s not a bargain yet.  Read the rest to learn why.

NuStar Energy L.P. (NS)

Price: $41.23 on 11/13/2012

Shares: 70.76 million

Market capitalization: $2.92 billion

What does the company do to earn profits?

Based in San Antonio, Texas, NuStar Energy L.P. is a master limited partnership spun off from refiner Valero Energy. Through growth and acquisitions, NuStar has become one of the world's largest independent liquids storage and transportation operators. Assets include 97 million barrels of storage capacity, 8,000 miles of pipeline across the Mid-Continent, Gulf Coast, Caribbean, and Europe. NuStar recently decided to sell 50% of its asphalt refining business to a joint venture.

Morningstar’s take:

NuStar Energy operates a geographically diverse network of crude oil and refined product pipelines and terminals that provides fairly steady, fee-based cash flow. NuStar differentiates itself from other MLPs with international assets which, though less predictable, add growth potential and diversify cash flow. Nearly half of NuStar's refined product terminal capacity--about 30 million barrels--is abroad in the U.K., the Caribbean, Canada, and Mexico. While foreign operations bring geopolitics, currency risk, and tax leakage into play, they can also provide better returns because these factors deter many of NuStar's competitors.

Bonds outstanding: no bond data at Morningstar.com.  That usually means they have no bonds outstanding.

Times bond interest earned: N/A

Preferred stock: N/A

DIVIDEND RECORD – NuStar has grown their dividend slightly since 2008, but they don’t have the earnings to sustain the dividend in the future.  Expect a cut.

Dividend: $1.11 quarterly

Dividend yield: 10.8%  ($4.44 annual dividend / $41.23 share price)

Dividend payout ratio: negative ratio ($4.44 / -$3.12 using 2012 Google Finance EPS) OR 207% ($4.44/$2.14 five yr avg. earning power)

EARNING POWER – $2.14 @ 70.76 million shares

(Earnings adjusted for changes in capitalization)

	EPS	Net income	Shares	Adjusted EPS
12/2007	$2.74	$150 M	47 M	$2.12
12/2008	$4.22	$254 M	53 M	$3.59
12/2009	$3.47	$255 M	55 M	$3.18
12/2010	$3.19	$239 M	63 M	$3.38
12/2011	$2.78	$221 M	65 M	$3.12
12/2012 (est)	($2.90)	($180.2 M)	70.76 M	($2.90) est

	EPS	Net income	Shares	Adjusted EPS
2012 Q1	$0.23	$26 M	70.76 M	$0.36
2012 Q2	($3.56)	($247 M)	70.76 M	($3.49)
2012 Q3	($0.09)	$4 M	70.76 M	$0.06
2012 Q4 (est)	$0.52	$36.8 M	70.76 M	$0.52
2012 total (est)	($2.90)	($180.2 M)	70.76 M	($2.90)

Six year average adjusted earnings per share is $2.14

Consider contrarian buying below $17.12 (8 times average adjusted EPS)

Consider value buying below $25.68 (12 times average adjusted EPS)

NuStar Energy L.P. (NS) is currently trading at 19.26 times average adjusted EPS.  This is almost speculatively pricing.

Consider speculative selling above $42.80 (20 times average adjusted EPS)

BALANCE SHEET – NuStar Energy has a weak balance sheet.

Book value per share: $37.57 ($2.659 B equity / 70.76 M shares)

Price to book value ratio: 1.09 (under 1.0 is good)

Tangible book value: $25.57 ($1.809 B tangible equity / 70.76 M shares)

Price to tangible book value ratio: 0.78

Current ratio: 0.78 ($864 M current assets / $1.11 B current liabilities) (over 2.0 is good)

Quick ratio:  0.096 ($107 M cash / $1.11 B current liabilities) (over 1.0 is good)

Debt to equity ratio: 0.58 (lower is better)

Percent of total assets:

            Real assets (property, plant, and equipment) – 58%

            Current assets – 16.11%

            Intangibles – 15.84%

            Other long term assets – 9.23%

CONCLUSION – Don’t be fooled by NuStar’s recent decline in price.  It isn’t a bargain yet.  The company is almost speculatively priced, has an unsustainable dividend, and a weak balance sheet.  I wouldn’t buy it until the price declines below $25.68 per share and the balance sheet improves in the several categories.

DISCLOSURE – I don’t own NuStar Energy L.P. (NS).

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!