New Best Idea: Short Genesis Energy LP (GEL)

We are adding Genesis Energy, L.P. (GEL) to our Best Ideas list as a short.  We see more than 50% downside to fair value.

GEL is $4.8B market cap MLP with a variety of midstream businesses: Gulf of Mexico (GoM) offshore pipelines, marine transportation, crude-by-rail terminals, refinery sulfur removal services, onshore crude oil and CO2 pipelines, trucking and other marketing assets.  The asset base has been put together largely via acquisition over the last 10 years – the Company has an impressive history of growing its distribution with “accretive” deals, its largest being the July 2015 purchase of Enterprise Products’ (EPD) offshore GoM pipelines and services business for $1.5B.  The market lauded this acquisition, and it is a big reason why GEL is one of the best performing MLPs in 2015, +4% vs. the AMZI Index (25)%.

But we are far less optimistic on the prospects of that acquisition … one of the many topics we’ll cover in our conference call presentation on GEL on Thursday, October 15th at 11am ESTAll Hedgeye Energy subscribers will receive the dial-in information and slide deck early Thursday morning.

Key Topics 

  • Cyclical and Structural Headwinds Emerging: Near-term and long-term outlook for GEL’s key operating segments: offshore oil pipelines, marine transportation, and crude-by-rail
  • A Gift Horse from EPD?  What did GEL acquire?  And was it really a great deal?   
  • What’s in a Distribution?  A critical look at GEL’s non-GAAP financial metrics and distribution policy
  • Valuation - What’s GEL Worth?  We go far beyond the run-of-the-mill MLP valuation methods to show that GEL has more than 50% downside to fair value
  • Catalysts and Risks:  When and how might our thesis play out?  And what are the risks to this idea?

Kevin Kaiser

Managing Director