- DCP Midstream has seen its unit price rally strongly since the lows of 2020 and it now appears to be time to take the profits off the table.
- Their distributions remain risky given their very high leverage and weak liquidity that sees them reliant upon their credit facility, which also hinders their growth prospects.
- Under a baseline scenario with zero distribution growth, it was estimated that their intrinsic value is over 40% lower than their current unit price.
- Even if they were to defy their very high leverage and thus provide high distribution growth in the coming years, their unit price is still only broadly around its intrinsic value.
- Since this indicates that the risks are very heavily skewed towards the downside with little prospects to generate alpha, I believe that downgrading to a bearish rating from neutral is appropriate.
For further details see:
DCP Midstream: Time To Take The Profits Off The Table