Shares of the natural gas processor Western Gas Partners LP hit a fresh 52-week high Wednesday, supported by a positive growth outlook stemming from the Monday acquisition of new processing facilities in Colorado and in anticipation of solid second-quarter earnings.
After the close of trading, the Woodlands,Texas-based company reported net income of $22.9 million, or 35 cents per unit, for the quarter ended June 30, compared with $17.8 million, or 32 cents per unit, in the year-earlier period. The analysts’ consensus estimate was for earnings-per-unit of 35 cents.
The company’s shares closed at $25.46 Wednesday, 48.5 percent higher than $17.15 a year earlier, after setting a new 52-week high during the session of $25.55. The dividend yield was 5.7 percent, compared with the oil and gas industry average of 5.3 percent.
Some analysts believe that Western Gas Partners’ recent acquisition of Colorado processing facilities provides a solid foundation for further growth.
“The assets bought have organic growth,” said Richard Gross, an analyst at Barclays Capital, the investment banking division of Barclays Bank PLC., based in London, U.K. “It was a very attractive purchase, it’s immediately accretive, and it provides organic growth to the partnership, so it was very beneficial.”
Furthermore, the acquisition follows a successful January acquisition of processing facilities located in southwest Wyoming, of which the company President Donald Sinclair described as “immediately accretive to distributable cash flow [to the investors].”
In fact, in the first quarter ended March 31 during which the acquisition took place, the company reported earnings of 37 cents per unit, 7 cents higher than 30 cents per unit in the year-earlier period, and 4 cents higher than $0.33 in the previous quarter.
Since its initial public offering in 2008, Western Gas Partners has expanded ambitiously, acquiring three such gathering and processing facility clusters using borrowed funds from numerous credit facilities. Looking at the balance between growth and debt management, however, analysts agree that Western Gas Partners is managing its debts well.
According to a Monday report by Computrade Systems Inc., a research and information management firm based in Atlanta, Ga., “WES’s [Western Gas Partners] management is effectively managing its total resources to generate profits for the company when compared to industry averages. The company’s long and short term debt ratios are in line with industry averages reflecting a solid financial condition.”
The long term debt-to-capital ratio, which measures the extent of the company’s capital that is provided by lenders, was 29 percent, far better than the peer group average of 44.8 percent, according to the report.
Looking at the short-term, Western Gas Partners has sufficient liquid assets to cover its near-term costs. In the quarter ended June 30, the company reported cash equivalents of $64.4 million, more than twice the current liabilities of $28.2 million. In fact, Western Gas Partners has always maintained enough cash to cover at least 80 percent of its near-term costs since the first quarter of 2008.
Overall, analysts believe the company’s growth is sustainable – four out of seven analysts surveyed by the First Call of Thomson Reuters have a “buy” or “strong buy” rating on Western Gas, while the rest recommended holding shares previously purchased. The company’s price-to-earnings ratio Wednesday afternoon was 18.78, compared with the industry average of 20.6.
Western Gas Partners processes and transports natural gas from its gathering facilities located at gas fields in Texas, Kansas, Oklahoma, and the Rocky Mountains. It is currently in a master limited partnership with Anadarko Petroleum Corporation, which handles the day-to-day management of the partnership by using the capital raised by Western Gas. The master limited partnership, similar to a real estate investment trust, enjoys the liquidity of a publicly traded company, but is exempt from corporate income taxes.