An­deavor may be worth the risk

The Oklahoman (Sunday) - - BUSINESS - Mal­colm Berko mjberko@yahoo.com

Dear Mr. Berko: Please tell me what you can about An­deavor Lo­gis­tics. Would this be a good stock to buy 200 shares of for a long-term hedge against in­fla­tion and the cost of liv­ing? — BD, Austin, Texas

Dear BD: This is a spec­u­la­tive stock, but in my opin­ion, ANDX is a di­ver­si­fied mid­stream pipe­line com­pany that has a 73 per­cent de­gree of prob­a­bil­ity of be­ing a good spec­u­la­tion for long-term ap­pre­ci­a­tion and div­i­dend growth. Buy it.

An­deavor Lo­gis­tics (ANDX$39.75), for­merly known as Te­soro Lo­gis­tics, traded in the mid-$70s a few years back. The drop in price was the re­sult of two years of lack­lus­ter per­for­mance as share earn­ings crashed to $1.47 in 2013 and then to 96 cents a share in 2014 and net profit mar­gins tum­bled to their low­est point ever since the name changed. To­day ANDX is a $3.2 bil­lion­rev­enue com­pany with a $4.12 div­i­dend that has a 10.3 per­cent yield.

ANDX’s Ter­mi­nalling and Trans­porta­tion seg­ment com­prises the North­west Prod­ucts Pipe­line, in­clud­ing a reg­u­lated com­mon car­rier prod­ucts pipe­line run­ning from Salt

Lake City to Spokane and a jet fuel pipe­line to the Salt Lake City In­ter­na­tional Air­port.

It also in­cludes a com­mon car­rier re­fined prod­ucts pipe­line con­nect­ing its re­fin­ery to its ter­mi­nals in An­chor­age.

It also in­cludes tank­ing and re­lated equip­ment at the re­fin­ery and huge prod­uct stor­age fa­cil­i­ties. This con­sists of ma­rine ter­mi­nals in Cal­i­for­nia and Wash­ing­ton; a rail car un­load­ing and pe­tro­leum coke han­dling fa­cil­ity; a man­i­fest rail fa­cil­ity; an as­phalt truck­ing op­er­a­tion; as­phalt ter­mi­nalling and pro­cess­ing ser­vices; and other pipe­lines that trans­port prod­ucts and crude oil from its re­finer­ies to fa­cil­i­ties in Salt Lake City and Los An­ge­les.

That’s a heck of a lot of dis­tance, a lot of prod­uct and a lot of pipe.

ANDX’s Gath­er­ing and Pro­cess­ing seg­ment in­cludes crude oil and nat­u­ral gas pipe­line gath­er­ing sys­tems in the Bakken Shale/Wil­lis­ton Basin area of North Dakota and Mon­tana; the Green River, Uinta and Ver­mil­lion Creek basins in Utah, Colorado and Wyoming; and the Delaware and Per­mian basins of West Texas and south­ern New Mex­ico.

Fi­nally, ANDX’s Whole­sale seg­ment con­sists of bulk pe­tro­leum dis­tri­bu­tion fa­cil­i­ties and a fleet of re­fined prod­uct de­liv­ery trucks. The com­pany has about 2,100 em­ploy­ees. Ter­mi­nalling and Trans­porta­tion is re­spon­si­ble for 26 per­cent of rev­enues. Gath­er­ing and Pro­cess­ing is re­spon­si­ble for 34 per­cent of rev­enues. And Whole­sale makes up the re­main­ing 40 per­cent of rev­enues.

2018 has been a lit­tle frac­tious, but ANDX will still post rev­enues that will be suf­fi­cient to pro­duce a $4.12 div­i­dend yield­ing 10.5 per­cent, made pos­si­ble by an im­proved 14.5 per­cent net profit mar­gin.

When the year is over, rev­enues will be lower and the num­bers will be a bit mixed, but ac­cord­ing to ANDXwatch­ers, the com­pany should smartly and smoothly re­bound in 2019.

On­go­ing in­vest­ments into cur­rent op­er­a­tions will lower cost while pro­duc­ing bet­ter op­er­at­ing and net profit mar­gins. Man­age­ment ex­pects rev­enues to be $2.5 bil­lion next year, with earn­ings of $3 a share, cash flow of $5.05 a share and a div­i­dend of $4.30 that yields 10.8 per­cent (on to­day’s $39.75 price), all made pos­si­ble by a greatly im­prov­ing net profit mar­gin of 16.9 per­cent. Some watch­ers be­lieve that by 2021, ANDX will post rev­enues of $5.2 bil­lion, with net profit mar­gins of 21.2 per­cent, and pay a $6.25 div­i­dend yield­ing 15.7 per­cent on to­day’s $39.75 pur­chase price.

That sounds like a lovely fairy tale, but you will need three years of pa­tience and fa­vor­able oil prices.

Many observers tell me that ANDX should have com­pelling to­tal re­turn po­ten­tial in the com­ing few years, but you need risk tol­er­ance.

The oil and gas mas­ter lim­ited part­ner­ship afi­ciona­dos I talked to sug­gest that ANDX could trade be­tween $110 and $125 a share by 2023. Wow! There are only 218 mil­lion shares out­stand­ing. And since Au­gust, the pres­i­dent and CFO have bought 545,000 shares at prices be­tween $46 and $50 a share. Of the 13 an­a­lysts who fol­low ANDX, 10 have “buy” rec­om­men­da­tions. The other three rec­om­mend ANDX as a hold.

Please ad­dress your fi­nan­cial ques­tions to Mal­colm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Mal­colm Berko and read fea­tures by other Cre­ators Syn­di­cate writ­ers and car­toon­ists, visit the Cre­ators Syn­di­cate web­site

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