Berko: Andeavor Logistics may be worth taking risk
By Malcolm Berko
Published: November 4, 2018, 6:00am
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Dear Mr. Berko: Please tell me what you can about Andeavor Logistics. Would this be a good stock to buy 200 shares of for a long-term hedge against inflation and the cost of living?
— BD, Austin, Texas
Dear BD: This is a speculative stock, but in my opinion, ANDX is a diversified midstream pipeline company that has a 73 percent degree of probability of being a good speculation for long-term appreciation and dividend growth. Buy it.
Andeavor Logistics (ANDX-$39.75), formerly known as Tesoro Logistics, traded in the mid-$70s a few years back. The drop in price was the result of two years of lackluster performance as share earnings crashed to $1.47 in 2013 and then to 96 cents a share in 2014 and net profit margins tumbled to their lowest point ever since the name changed.
Today, ANDX is a $3.2 billion-revenue company with a $4.12 dividend that has a 10.3 percent yield.
ANDX’s Terminalling and Transportation segment comprises the Northwest Products Pipeline, including a regulated common carrier products pipeline running from Salt Lake City to Spokane and a jet fuel pipeline to the Salt Lake City International Airport. It also includes a common carrier refined products pipeline connecting its refinery to its terminals in Anchorage.
It also includes tanking and related equipment at the refinery and huge product storage facilities. This consists of marine terminals in California and Washington; a rail car unloading and petroleum coke handling facility; a manifest rail facility; an asphalt trucking operation; asphalt terminaling and processing services; and other pipelines that transport products and crude oil from its refineries to facilities in Salt Lake City and Los Angeles. That’s a heck of a lot of distance, a lot of product and a lot of pipe.
ANDX’s Gathering and Processing segment includes crude oil and natural gas pipeline gathering systems in the Bakken Shale/Williston Basin area of North Dakota and Montana; the Green River, Uinta and Vermillion Creek basins in Utah, Colorado and Wyoming; and the Delaware and Permian basins of West Texas and southern New Mexico.
Finally, ANDX’s Wholesale segment consists of bulk petroleum distribution facilities and a fleet of refined product delivery trucks. The company has about 2,100 employees. Terminalling and Transportation is responsible for 26 percent of revenues. Gathering and Processing is responsible for 34 percent of revenues. And Wholesale makes up the remaining 40 percent of revenues.
2018 has been a little fractious, but ANDX will still post revenues that will be sufficient to produce a $4.12 dividend yielding 10.5 percent, made possible by an improved 14.5 percent net profit margin.
When the year is over, revenues will be lower and the numbers will be a bit mixed, but according to ANDX-watchers, the company should smartly and smoothly rebound in 2019. Ongoing investments into current operations will lower cost while producing better operating and net profit margins.
Management expects revenues to be $2.5 billion next year, with earnings of $3 a share, cash flow of $5.05 a share and a dividend of $4.30 that yields 10.8 percent (on today’s $39.75 price), all made possible by a greatly improving net profit margin of 16.9 percent.
Some watchers believe that by 2021, ANDX will post revenues of $5.2 billion, with net profit margins of 21.2 percent, and pay a $6.25 dividend yielding 15.7 percent on today’s $39.75 purchase price. That sounds like a lovely fairy tale, but you will need three years of patience and favorable oil prices.
Many observers tell me that ANDX should have compelling total return potential in the coming few years, but you need risk tolerance. The oil and gas master limited partnership aficionados I talked to suggest that ANDX could trade between $110 and $125 a share by 2023. Wow! There are only 218 million shares outstanding. And since August, the president and CFO have bought 545,000 shares at prices between $46 and $50 a share. Of the 13 analysts who follow ANDX, 10 have “buy” recommendations. The other three recommend ANDX as a hold.
