Message-ID: <13737809.1075844946141.JavaMail.evans@thyme> Date: Mon, 7 Feb 2000 06:35:00 -0800 (PST) From: scott.vonderheide@enron.com To: stanley.horton@enron.com, mark.koenig@enron.com, paula.rieker@enron.com, michael.burke@enron.com, dana.gibbs@enron.com, lori.maddox@enron.com, susan.ralph@enron.com, lou.potempa@enron.com Subject: Dain Rauscher note on EOTT Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Scott Vonderheide X-To: Stanley Horton, Mark Koenig, Paula Rieker, Michael Burke, Dana Gibbs, Lori Maddox, Susan Ralph, Lou Potempa X-cc: X-bcc: X-Folder: \Stanley_Horton_1\Notes Folders\Discussion threads X-Origin: HORTON-S X-FileName: shorton.nsf With the attached note, all analysts' estimates posted on First Call are after the mark-to-market impact. After third quarter earnings were released, we told the analysts few transactions would be marked-to-market at year end. As a result, we would expect mark-to-market to be negative in the fourth quarter also. With Dain Rauscher's revisions, the concensus is $0.03 for the fourth quarter of 1999 and $0.24 for the full year. Scott ---------------------- Forwarded by Scott Vonderheide/Corp/Enron on 02/07/2000 02:22 PM --------------------------- "Easterbrook, Mark" <MSEasterbrook@DainRauscher.com> on 02/07/2000 10:28:48 AM To: "Scott D. Vonderheide (E-mail)" <svonder@enron.com> cc: Subject: FW: B Aggr; REJIGGERING EOTT ESTIMATES TO REFLECT MARK-TO-MARKET Mark Easterbrook, CFA DRW-Equity Research (Dallas) ph: 214-989-1408; fax: 214-989-1388 mseasterbrook@dainrauscher.com -----Original Message----- From: DRWMercury@dainrauscher.com [mailto:DRWMercury@dainrauscher.com] Sent: Monday, February 07, 2000 7:43 AM To: researchfinalnote@dainrauscher.com Subject: EOT:B Aggr; REJIGGERING EOTT ESTIMATES TO REFLECT MARK-TO-MARKET Dain Rauscher Wessels a division of Dain Rauscher Incorporated * We are adjusting our 1999 and 4Q99 earnings/DCF estimates to reflect mark- to-market adjustments. * In 2000 mark-to-market accounting should have minimal impact on current estimates. * We are initiating our 2001 earnings/DCF estimates of $0.70/$1.60 per unit. * The acquisition environment continues to look strong. * EOT units have not participated in the recent uptick in the MLP group. We suggest investors buy at current prices. EOTT Energy Partners, L.P. NYSE:EOT Rating: Buy Risk: Aggressive Price Target: $ 20 Feb 7, 2000 Price: $12.81 52-Wk Range: $19-$12 Year End: Dec Fiscal EPS P/E 1999E $0.23 55.7x 2000E $0.65 19.7x 2001E $0.70 18.3x 1999 = After mark-to-market impact Tr. 12 ROE: 4.10% 3 Yr EPS Gr: NM Shares Out: 24.00 million Book Value: $3.75 Market Cap: $307.50 million DIVERSIFIED NATURAL GAS/MLPS Mark Easterbrook, CFA (214) 989-1408 mseasterbrook@dainrauscher.com EOT:B-Aggr;REJIGGERING EOTT ESTIMATES TO REFLECT MARK-TO-MARKET Adjusting Estimates To Reflect Mark-To-Market: We are changing our 1999 year-end and fourth-quarter estimates for EOTT Energy to reflect the impact of mark-to-market (noncash adjustments to reflect current value of the contract portfolio). For the year, we are excluding the cumulative benefit of $1.7 million (or $0.07 per unit) take in the 1Q99. However, we are including the $2.8 million ($0.12 per unit) negative impact of mark-to-market for the 3Q99. So our 1999 earnings/distributable cash flow (DCF) estimates decline to $0.23/$1.25 per unit from $0.40/$1.40. Our 4Q00 earnings estimates fall to $0.02 from $0.10 per unit, which assumes a $2.0 million negative impact from mark-to-market. Our 2000 earnings/DCF estimate remains at $0.65/$1.55 per unit and we are initiating our 2001 estimates of $0.70/$1.60. Acquisitions Continue To Be In The Cards: We have seen the partnership quadruple the amount of pipeline miles it controls to 8,200 miles over the last 24 months. Continued success in integrating the Koch assets and the Texas-New Mexico Pipeline with the rest of the asset base should continue to provide cost savings and build cash flow. Although management has laid low over the last six months on the acquisition front, we believe there are several opportunities within the sector. As we have suggested before, the consolidation going on within the major oil companies may fuel the consolidation within the crude oil transportation segment. Major oil companies are focusing on their strengths of E&P and retail, while divesting noncore assets. In addition, the numbers of players in the crude oil transportation business continues to diminish. The balance sheet for EOTT is in good shape at a debt/capitalization percentage of 56%. EOTT could take on more acquisitions. With another large acquisition we could see coverage of the distribution improve. Unfortunately the unit price has fallen to unattractive levels to make acquisitions. If the price of the units were to improve, we could see the partnership aggressively go after other acquisitions. Stock Opinion We consider the Enron support of $26 million for distribution through March 2001 as a safety net. Distributable cash flow should be able to cover the common distribution. We look for yield improvement in the EOT units to 9.5% yield, still a discount to the peer group but an improvement over the current 14.8%. Using this yield valuation and the current $1.90 distribution, we have a 12-month price target of $20 per unit. The units have not reacted to the improvement in the MLP arena. Since the beginning of the year two short-term trends has subsided (tax-loss selling and Y2K concerns), which have helped the MLP group. Even interest rate concerns seemed to wain with the reduction of the long-term bond rates. However, EOT units have not participated in this move. We believe once the partnership reports 4Q99 results and discusses acquistiion potential the market may take notice. We recommend investors take advantage of the weakness and purchase the EOT units. Company Description EOTT is a major independent marketer of crude oil in North America. Enron Corporation effectively holds a 44% interest in the partnership. The partnership owns or leases 440 trucks and owns 8,200 miles of intrastate and interstate pipeline and gathering systems. ____________________________________________________________________________ __ Dain Rauscher Incorporated managed or co-managed a public offering of the securities of EOTT Energy Partners, L.P. within the past three years. Additional information on the securities mentioned is available on request. This does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. The opinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. DRI, its officers, directors, affiliates, and/or employees (including the authors of this report) may from time to time have a long or short position in publicly or privately issued securities of companies mentioned or derivatives thereof and may sell or buy such securities for their own or related accounts. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Copyright 2000 Dain Rauscher Incorporated Call your DRW salesperson at 1-800-937-4678 - 0207000-EOT.pdf