Phillips 66 Partners LP (PSXP): History Says This Stock Will Soar

Phillips 66 Partners LP (NYSE:PSXP) generated distributable cash flow (net income plus depreciation) of $74 million. The company now retains a market capitalization of just over $1 billion. The result is a distributable cash flow yield of 7%. The DCF yield is a proven winner at identifying MLPs poised to outperform. PSXP currently sits very close to the median of all MLPs. MPLX LP (NYSE:MPLX) is slightly higher at 8% and the largest MLP, Enterprise Products Partners L.P. (NYSE:EPD), sits at 6.2%.

The middling valuation on PSXP may not initially sound overwhelming, but the company will have substantial opportunities during the coming quarters as Phillips 66 continues to drop down its other midstream assets. Enterprise Products Partners L.P. (NYSE:EPD) may offer substantial diversity in its more than $45 billion in annual revenues, but growth will remain tepid going forward. Dividends have only grown at a 5% rate during the last half-decade. EPD is still a good investment for conservative accounts as the company is well positioned to capitalize on increasing natural gas production in the United States over the coming decade. But investors that want to trade into another MLP with much higher growth opportunities should swap into Phillips 66 Partners LP. And those successful investors in MPLX LP (NYSE:MPLX) may want to diversify some of their winnings as well.

The Foolish Bottom Line

Is Phillips 66 Partners LP (NYSE:PSXP) going to be the eighth consecutive midstream MLP to crush the market in its first year as an independent public company? The stock has ripped out of the gate, but should still be evaluated in the context of where it is now and where it will be in a year. I think the price will be substantially higher than $30 per share.

The article History Says This Stock Will Soar originally appeared on Fool.com and is written by Justin Carley.

Justin Carley owns shares in Phillips 66 Partners LP. The Motley Fool recommends Enterprise Products Partners L.P. Justin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.