DCP - DCP Midstream: Performing Well But Leverage Is Way Higher Than It Seems

• DCP Midstream has performed well during the second quarter of 2021 after a weak start to the year from the freak Texas Winter storm.
• Whilst their operating cash flow remains weighed down by very large working capital movements, their underlying operating cash flow is recovering and management has increased their guidance.
• The bigger problem remains their very high leverage that is way higher than it seems when viewing the leverage ratio stated in their reports.
• This stems from their leverage ratio excluding $550m of debt and in my view, their $752m of preferred equity should also be included since it effectively acts like debt for their common unitholders.
• Following this analysis, I still believe that a bearish rating is appropriate with their unit price around a two-year high, making it a suitable time for investors to consider taking profits off the table.

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