NEW YORK (TheStreet) -- Shares of Tallgrass Energy Partners (TEP) were falling 5.6% to $49.63 on heavy trading volume Tuesday after the oil and gas pipeline company announced the pricing of its follow-on public offering.
Tallgrass Energy Partners priced the 10 million common units representing limited partner interests in its public offering at $50.82 a common unit. The underwriters of the follow-on offering have a 30-day option to buy up to an additional 1.5 million common units.
The company said it plans to use the net proceeds from the offering to pay for part of the consideration for its potential acquisition of a 33.3% interest in Tallgrass Pony Express Pipeline from a subsidiary of Tallgrass Development. The acquisition would increase Tallgrass Energy's ownership of Pony Express to 66.7%.
Exclusive Report: Jim Cramer's Best Stocks for 2015
If the company isn't able to acquire the interest in Tallgrass Pony Express Pipeline, Tallgrass Energy Partners plans to use the net proceeds from the offering to repay borrowings under its revolving credit facility. Any excess proceeds will then be used for general partnership purposes.
About 2.8 million shares of Tallgrass Energy Partners were traded by 10:46 a.m. Tuesday, above the average trading volume of about 176,000 shares a day.
TheStreet Ratings team rates TALLGRASS ENERGY PRT LP as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate TALLGRASS ENERGY PRT LP (TEP) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 20.1%. Since the same quarter one year prior, revenues rose by 26.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.54, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.21, which illustrates the ability to avoid short-term cash problems.
- Powered by its strong earnings growth of 60.60% and other important driving factors, this stock has surged by 88.03% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, TALLGRASS ENERGY PRT LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Net operating cash flow has declined marginally to $32.20 million or 1.64% when compared to the same quarter last year. Despite a decrease in cash flow TALLGRASS ENERGY PRT LP is still fairing well by exceeding its industry average cash flow growth rate of -15.92%.
- You can view the full analysis from the report here: TEP Ratings Report