- After seeing a record profitable year during 2020, Global Partners has seen 2021 broadly normalize and as the quarters pass, this increases the risk to their already risky distributions.
- Their gross margin has a clear inverse correlation with oil prices, which means their financial performance will suffer if oil prices keep climbing.
- On the flip side, if oil prices crash, the historical trading data indicates that their unit price will follow suit and thus this creates a lose-lose scenario.
- The one hope is for operating conditions to broadly track sideways, but since their distributions already have very weak coverage and very high leverage, they may still be reduced anyway.
- Following this analysis, I now believe that downgrading my rating to bearish from neutral is appropriate.
For further details see:
Global Partners: Limited Upside With Risky Distributions In A Lose-Lose Scenario