UPDATE: JPMorgan Downgrades Holly Energy Partners (HEP) to Underweight
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JPMorgan analyst Jeremy Tonet downgraded Holly Energy Partners (NYSE: HEP) from Neutral to Underweight with a price target of $20.00 (from $24.00).
The analyst comments "Holly Energy Partners holds the midstream-related assets of parent HollyFrontier Corporation (J.P. Morgan Analyst Phil Gresh), with ~76% of revenue backed by minimum volume commitments and ~80% of those MVCs expiring in 2024 or later. We believe these strong contractual commitments and steady demand-pull assets provide HEP with cash flow stability that few peers match. However, corporate governance remains a concern for sponsored MLPs, including HEP. We expect the Sinclair transaction initially depends on increased leverage to drive accretion, and any accretion benefit will dissipate as HEP reduces leverage towards its target. While the transaction increases HEP’s scale, we see benefits largely accruing to the sponsor, rather than the MLP. With a reinforced view of potential MLP conflicts of interest discussed in our corporate governance note and seeing elevated execution risk with relatively limited upside, we downgrade HEP from N to UW."
Shares of Holly Energy Partners closed at $19.11 yesterday.
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