Wells Fargo Comments on CST-LGP Deal

Expects to see more c-store chains pursuing MLP partnerships.

CST: LGP Deal – Good Things Will Come To Those Who Wait – CST’s Deal with LGP Expected To Create Long Term Value for Investors

Wells Fargo Securities LLC predicts that CST’s recent deal with Lehigh Gas Partners(LGP) will create long-term value for investors, however, that value creation could take some time before becoming fully realized.

“Overall, we continue to believe this transaction is positive and jump starts CST’s foray into a stronger/more efficient capital structure with access to an attractive cash flow stream. Broadly speaking, we see value in this deal and expect it could accelerate CST’s organic and acquisitive growth. However, we believe this transaction could overshadow the underlying fundamentals of CST’s business, which have been somewhat lackluster over the past few quarters. Further, as portions of CST’s fuel distribution business are dropped down to LGP, CST’s fuel margin and EPS could be negatively impacted; however, this will likely be offset by CST’s new cash flow stream and stronger balance sheet, which we believe will be used to drive faster growth,” noted Bonnie Herzog, managing director, Beverage, Tobacco & Convenience Store Research, Wells Fargo Securities.

Herzog added, “Bottom line—we are encouraged by this opportunity and the future cash flows that should help CST accelerate growth. Based on this, we raise our valuation range by $4 to $33-35, reflecting higher multiples. We maintain our Market Perform rating.”

Wells Fargo further expects to see more c-store chains pursuing MLP partnerships.

“Given the potential value created in this deal for both the MLP and CST, as well as ETP’s recent deal with SUSS/SUSP, we believe there are more of these types of deals to come,” noted Herzog. “Further, we continue to see industry consolidation accelerating as companies realize the value these transactions can create.”




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