Legacy Reserves LP (LGCY) is expected to deliver a total return in the double digits in the next year, and Christopher P. Sighinolfi, Director at UBS Investment Bank, rates this master limited partnership a “buy” name using the investment bank’s total-return approach to investing.
“An 11% total return over the next 12 months generates a ‘buy’ rating under our system today, and so when you have a name like Legacy that yields almost 9% — and we think not only is that going to be paid, but it will grow over the course of the next 12 months — it makes for a very achievable target,” Sighinolfi said.
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Sighinolfi says Legacy benefits from the current backdrop of exploration and production oil and gas companies looking to obtain capital through the sale of some of their assets, especially given the capital intensity of their operations.
“Legacy offers an 8.7% current distribution yield; LINN (LINE) is at about 7.7%. So a significant current income, and then, as I mentioned before, we are seeing a very nice backdrop for acquisition opportunities, given cash flow pressures at independent E&P companies and a desire to use asset sales as a means of closing cash flow deficits. And given the disparity in where these companies trade versus where they are able to buy assets, it’s a very nice accretive opportunity set for them,” Sighinolfi said.
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