Chesapeake Midstream Partners, L.P. - Growth & Income

Chesapeake Midstream Partners, L.P.

 (CHKM) offers investors double-digit earnings growth and a juicy 5.4% yield at a reasonable price.

The partnership also recently delivered better than expected fourth quarter results, prompting analysts to revise their estimates higher for 2012. It is a Zacks #2 Rank (Buy).

Master Limited Partnership

Chesapeake Midstream Partners is a master limited partnership that is primarily focused on natural gas gathering. This is the first segment of midstream energy infrastructure that connects natural gas produced at the wellhead to third-party takeaway pipelines.

The partnership generates revenue under long-term, fixed-fee contracts, which has allowed it to distribute steadily increasing cash to investors since it went public in 2010.

It has a market cap of $4 billion and is headquartered in Oklahoma City.

Fourth Quarter Results

Chesapeake Midstream Partners delivered better than expected fourth quarter results on February 28. Earnings per unit came in at 46 cents, beating the Zacks Consensus Estimate by 2 cents.

Adjusted revenue was up 44% year-to-year to $169 million, ahead of the Zacks Consensus Estimate of $156 million.

Adjusted distributable cash flow (DCF) surged 61% over the same period to $78.9 million, resulting in a healthy distribution coverage ratio of 1.34.

5.4% Yield

As an MLP, Chesapeake Midstream must pay out the majority of its earnings to unitholders to avoid paying tax on that income. It currently yields a stellar 5.4%.

The partnership has raised its distribution every quarter since it went public in 2010, including a 16% year-over-year increase in January.

Estimates Rising

Earnings estimates have been moving higher following the partnership's solid Q4 results. It is a Zacks #2 Rank (Buy).

Based on consensus estimates, analysts expect strong earnings per unit growth over the next few years. The Zacks Consensus Estimate for 2012 is now $1.58, representing 15% growth. The 2013 consensus estimate is 16% higher at $1.82.

And this growth should drive continued increases in distributions over the next several quarters.

Valuation

Valuation looks reasonable for CHKM with shares trading at 18x forward earnings, a discount to the industry median of 20x.

Its price to tangible book ratio is just 1.0, well below the peer group multiple of 3.6.

The Bottom Line

With a stellar 5.4% yield, rising earnings estimates, strong growth projections and reasonable valuation, Chesapeake Midstream offers investors attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

 
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