As they say, 'When the going gets tough, the tough get going.' And that's exactly what Valero Energy Partners has done.
As an investor in the energy sector, I have been keeping a close eye on VLP, and I must say, their performance has been nothing short of impressive. Despite the recent turmoil in the MLP market, VLP has continued to surge ahead, defying all odds. They have not only held their ground but have outperformed their peers.
This comes as no surprise, considering the favorable conditions for refining-based MLPs and the strong financial performance of VLP's general partner, Valero Energy.
In this article, I will delve into the reasons behind VLP's success and explore the growth catalysts that are driving their remarkable performance.
Key Takeaways
- Valero Energy Partners has performed well during the recent MLP sell-off.
- The company is expected to outperform the sector as refining-based MLPs regain favor.
- Drop-downs in 2015 exceeded the original forecast and will drive EBITDA growth.
- Valero Energy Partners' Q3 earnings showed significant growth in revenues, net income, and distributable cash flow.
Valero Energy Partners' Strong Performance
Valero Energy Partners has consistently demonstrated strong performance in the midst of market turmoil. The reasons for their success can be attributed to favorable market conditions.
As a refining-based MLP, Valero Energy Partners benefits from positive market conditions, including access to cheap crude and natural gas feedstock. Additionally, low gasoline prices have led to increased demand and robust new vehicle sales, which further bolster Valero Energy Partners' performance.
Another factor contributing to their success is their access to low-cost capital. Moreover, Valero Energy Partners' general partner, Valero Energy, has shown strong financial performance, which has had a positive impact on Valero Energy Partners' performance as well.
Reasons for Outperformance
Despite the challenging market conditions, Valero Energy Partners has managed to outperform, thanks to several key factors:
- Positive market conditions: Valero Energy Partners has benefited from favorable market conditions, particularly for refining-based MLPs. This has provided a strong foundation for the company's performance.
- Refining-based MLPs: Being a refining-based MLP has given Valero Energy Partners an advantage. Domestic refiners have benefited from access to cheap crude and natural gas feedstock, which has boosted their profitability.
- Low gasoline prices: The current low gasoline prices have led to rising demand and robust new vehicle sales. This increased demand has been beneficial for refiners like Valero Energy Partners.
- Access to low-cost capital: Refiners, including Valero Energy Partners, have had access to low-cost capital, enabling them to invest in growth opportunities and drive their performance.
Impressive Q3 Earnings
In the third quarter, Valero Energy Partners delivered exceptional earnings growth, showcasing their impressive growth and financial success. Quarterly revenues surged by 84%, highlighting the company's ability to generate substantial income. Operating expenses also declined, further contributing to their robust financial performance.
Net income saw a staggering increase of 455%, while per unit net income rose by 70%. Distributable cash flow nearly doubled, and the coverage ratio exceeded 2x, indicating the company's strong ability to cover its distributions.
Valero Energy Partners also announced a moderate increase in the quarterly distribution, demonstrating their commitment to shareholder value. With these impressive Q3 earnings, Valero Energy Partners continues to solidify its position as a leading player in the energy sector.
Near-Term Growth Catalysts
With the impressive Q3 earnings firmly establishing Valero Energy Partners as a leading player in the energy sector, the near-term growth catalysts are poised to drive further success.
Here are the key factors that will contribute to the company's growth:
1) Lower gasoline prices: The current low gasoline prices are boosting demand, which is bullish for refiners and MLPs like Valero Energy Partners. As more consumers are able to afford gasoline, the demand for refined products is expected to increase.
2) Distribution growth drivers: Valero Energy Partners has two drop-downs planned for 2015, including the recent acquisition of the Corpus Christi Terminal Services Business. This acquisition includes terminals that support Valero's Corpus Christi refineries and is expected to contribute around $50 million of EBITDA in its first full year of operation. These drop-downs will drive distribution growth for the company.
Corpus Christi Terminal Services Business Acquisition
Valero Energy Partners' acquisition of the Corpus Christi Terminal Services Business has solidified its position in the energy sector. This acquisition is expected to have a significant impact on the company's growth potential.
The deal includes terminals that support Valero's Corpus Christi refineries and is projected to contribute approximately $50 million of EBITDA in its first full year of operation. The acquisition was self-funded and the price/EBITDA ratio indicates a reasonable valuation.
This strategic move will further strengthen Valero Energy Partners' presence in the market and enhance its ability to generate value for its shareholders. With this acquisition, the company is well-positioned to continue its trajectory of growth and capitalize on the favorable market conditions in the energy sector.
Deal Metrics and Valuation
The acquisition of the Corpus Christi Terminal Services Business by Valero Energy Partners is supported by reasonably valued deal metrics.
- Price/EBITDA ratio: The deal was valued at approximately 8.7 times EBITDA, indicating a reasonable valuation.
- Self-funded acquisition: Valero Energy Partners used its own resources for the purchase, showcasing its financial strength.
- Debt-to-equity ratio: Valero Energy Partners aims to maintain a debt-to-equity ratio of around 3.5 times, ensuring a balanced capital structure.
- Investment-grade credit rating: The company's investment-grade credit rating allows it to access the debt market for future capital needs.
These deal metrics and valuation strategies demonstrate Valero Energy Partners' commitment to making sound financial decisions and its ability to secure assets at reasonable prices.
Maintaining a Healthy Debt-to-Equity Ratio
Maintaining a healthy debt-to-equity ratio is crucial for Valero Energy Partners to ensure a balanced capital structure and financial stability. By managing financial stability and balancing the capital structure, Valero Energy Partners can mitigate risks and maintain investor confidence.
A debt-to-equity ratio measures the proportion of debt and equity used to finance a company's operations. For Valero Energy Partners, a debt-to-equity ratio of approximately 3.5x is targeted. This ratio allows the company to leverage its assets while still maintaining a manageable level of debt. By carefully monitoring and adjusting this ratio, Valero Energy Partners can access the debt market when needed and ensure its ability to fund growth opportunities.
Additionally, a healthy debt-to-equity ratio demonstrates the company's ability to meet its financial obligations and signifies its financial strength in the market.
Leveraging Investment-Grade Credit Rating
Leveraging its investment-grade credit rating, Valero Energy Partners aims to optimize its capital structure and financial stability. This credit rating allows the company to access the debt market at favorable terms, enabling it to efficiently raise funds for growth and expansion.
The investment-grade credit rating provides Valero Energy Partners with several advantages in capital utilization and market conditions:
- Lower borrowing costs: With an investment-grade credit rating, Valero Energy Partners can secure loans at lower interest rates, reducing its overall cost of capital.
- Increased investor confidence: The investment-grade credit rating signals to investors that Valero Energy Partners is a low-risk investment, attracting more capital and potential shareholders.
- Flexibility in financial strategies: Valero Energy Partners can take advantage of market opportunities by utilizing its investment-grade credit rating to pursue strategic acquisitions and partnerships.
- Enhanced financial stability: The investment-grade credit rating ensures that Valero Energy Partners has a strong financial foundation, providing stability and resilience in uncertain market conditions.
Frequently Asked Questions
How Has Valero Energy Partners' Performance Been Affected by the Recent MLP Sell-Off?
Valero Energy Partners' performance was not significantly affected by the recent MLP sell-off. Despite market turmoil, the company held up well due to positive market conditions and its strong financial performance.
What Are the Reasons Behind Valero Energy Partners' Outperformance Compared to Other Refining-Based Mlps?
The reasons behind Valero Energy Partners' outperformance compared to other refining-based MLPs include positive market conditions, the benefit of cheap crude and natural gas feedstock, rising demand due to low gasoline prices, and strong financial performance from its general partner, Valero Energy.
What Were the Key Highlights of Valero Energy Partners' Q3 Earnings Report?
The key highlights of Valero Energy Partners' Q3 earnings report include an 84% increase in revenues, a 455% increase in net income, and a nearly doubled distributable cash flow. These results show strong performance despite the recent MLP sell-off.
What Are the Near-Term Growth Catalysts for Valero Energy Partners?
Near-term growth catalysts for Valero Energy Partners include lower gasoline prices boosting demand, two drop-downs in 2015 driving distribution growth, and the recent acquisition of the Corpus Christi Terminal Services Business. These factors contribute to the company's ability to defy market turmoil.
What Were the Deal Metrics and Valuation for Valero Energy Partners' Acquisition of the Corpus Christi Terminal Services Business?
The valuation for Valero Energy Partners' acquisition of the Corpus Christi Terminal Services Business was approximately 8.7x price/EBITDA, indicating a reasonable valuation. This acquisition is a near-term growth catalyst for Valero Energy Partners.
