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On Thursday, Citi adjusted its stance on Western Gas Partners, which trades on the New York Stock Exchange under the ticker NYSE:WES, moving the rating from Buy to Neutral. Despite the downgrade, the firm increased the price target for the company’s shares to $34.00, up from the previous target of $30.00.
The downgrade comes after Western Gas Partners outperformed the market, with a notable 13% gain compared to the Alerian MLP Index (AMZ). The analyst from Citi attributed this recent surge in share value to a combination of factors that followed the company’s earnings release.
These included guidance that surpassed estimates, the sale of assets totaling $790 million at a beneficial 9.6 times multiple, and the announcement of a significant 52% increase in distributions, resulting in a yield of over 10%.
Citi’s analysis indicates that these three positive developments have been mostly factored into the current stock price, leading to the stock trading on par with its gas and processing (G&P) peers. As a result, the firm views the risk-reward balance for the stock as more even at this point.
Looking ahead, the analyst remains optimistic about Western Gas Partners’ potential to grow its distribution by at least 4% annually while reducing capital expenditures below $600 million. However, the firm also notes that tighter cash flow coverage now presents a higher risk than before. Despite this, Western Gas Partners is recognized for its minimal commodity exposure and a strong portfolio of take-or-pay style contracts, which are considered favorable for stability.
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