Last Friday, Oiltanking Partners LP (NYSE:OILT) made a new 52-week high to $96.12 to mark the twelfth time the stock made a new one-year high within the last one year and the fourth time within a month. In my opinion, stocks that are consistently making new highs usually go on to make new highs unless a change in market dynamics or a change in their market position halt the momentum. Oiltanking Partners has gone ahead to make a new high to $96.93 today and the stock is trading up 0.60% at 2:15PM EDT.
A Little Background
According to the company description on Google Finance, Oiltanking Partners is a $3.96 billion energy company that is “engaged in the terminaling, storage and transportation of crude oil, refined petroleum products and liquefied petroleum gas. The company owns and operates storage and terminaling assets located along the Gulf Coast of the United States on the Houston, Texas Ship Channel and in Beaumont, Texas.
Its Houston and Beaumont terminals provide deep-water access and interconnectivity to refineries, chemical and petrochemical companies, carrier and pipelines and production facilities and have international distribution capabilities.”
Reason behind the Recent Bullish Run
Shares of Oiltanking Partners began the recent bullish run after the company reported Q1 2014 results on April 30. From an $80.42 open on August 30, the stock has risen 18.22% to open at $95.08 today. The first quarter result is a good enough reason for the share price to rise considering the fact that the company reported a 49% increase in profit from $40.2 million last year to $60.0 million in recently reported quarter. Net income grew by an impressive 65% from $20.2 million or $0.48 per share last year to $33.3 million or $0.63 per share in the first quarter.
Is the Bullish Run Sustainable?
You do not need to look beyond the company’s 2014 investor presentation and first quarter earnings call transcripts to ascertain the sustainability of this bullish momentum. For one, the company has been stable in the growing of its revenue and productivity despite a recession, bull/bear markets and the changes in the Crude spot price.
The image above shows Oiltanking Partners CAGR increasing by an average of $14.4 % in the last five years. More interesting is the fact that we can expect 36.45% increase this year.
Secondly, you will be impressed by the expansion plans of the company organically and by acquisition. I am particularly optimistic about the potential contribution from the company’s completion of the Applet Phase I pipeline development. The Applet Phase II and III pipelines are also on track and it is expected that the Phase II will be completed earlier than the October due date.
Potential Risks of Staying Bullish on OILT
To its credit, Oiltanking Partners has zero outstanding debt under its $150 million revolving line of credit. However, the company has announced that an increase in CapEx might lead to the resumption of borrowing under the revolving line of credit. The company currently has total outstanding debt of $190 million to put its debt-to-EBITDA ration at 1.2X. An increase in CapEx combined with an increase in debts might cause the quality of strong financials might drop.
An RSI of 84.15 also places shares of Oiltankers in seriously overbought territory; hence, you may want to follow my lead on exercising patience on trading calls.
How to Trade OILT Calls
I am bullish on Oiltankers but I am staying on the sidelines until the current bullish wave wanes in order to catch the next bullish wave. More so, the open interest for my choice November 14 options is currently low and I am hoping to see an increase in the open interest before taking the plunge. In the meantime, you may want to consider the OILT Nov 2014 100.000 call (OILT141122C00100000).
— Daily Option Alerts