We came across a bullish thesis on Genesis Energy, L.P. (GEL) on ValueInvestorsClub by chewy. In this article we will summarize the bulls’ thesis on GEL. Genesis Energy, L.P. shares were trading at $12.53 when this thesis was published, vs. closing price of $12.82 as of Sept 9.
A pipeline stretching through a desert valley, a symbol of the companies transportation infrastructure.
Genesis Energy, L.P. (GEL) is a diversified Master Limited Partnership (MLP) currently trading at a 22.0% free cash flow (FCF) yield for 2026, with FCF expected to increase significantly this year. GEL appears undervalued due to its conservative payout policy, which has kept distributions low despite earnings exceeding pre-COVID levels. Following a 73% cut in March 2020, distributions have remained at depressed levels, deterring yield-focused investors. However, upcoming catalysts over the next 12 months, including significant distribution increases as capital expenditures revert to maintenance levels and earnings grow contractually, should enhance GEL’s valuation.
GEL operates across four segments: Offshore Pipeline Transportation (50% of segment EBITDA), Soda and Sulfur Services (32%), Marine Transportation (14%), and Onshore Facilities and Transportation (4%). The Offshore Pipeline Transportation segment owns critical infrastructure transporting crude oil from the deepwater Gulf of Mexico to shore, and benefits from long-term contracts that ensure stable cash flows. Significant investments in the Shenandoah and Salamanca platforms will drive a 27% increase in segment EBITDA starting mid-2025. The Soda and Sulfur Services segment benefits from GEL’s status as a low-cost producer of natural soda ash, a product essential for the solar and lithium industries. Despite current pricing pressures, GEL is well-positioned for a recovery as higher-cost producers shut down capacity and demand for soda ash rises. The Marine Transportation segment, bolstered by a constrained supply of Jones Act tankers, is poised for record earnings growth, while the Onshore Facilities and Transportation segment will benefit from increased offshore volumes.
GEL’s earnings potential is currently understated, with a near-term 29% EBITDA growth potential expected from the offshore and soda ash segments. By the end of 2024, GEL’s capital expenditure projects will conclude, resulting in an anticipated 15% growth in consolidated EBITDA. Additionally, the Granger soda ash facility’s expansion will enable $80-$100 million of incremental EBITDA annually. With soda ash prices expected to normalize, GEL could see another $100 million in EBITDA recovery, contributing an additional 14% consolidated EBITDA growth.
By 2026, GEL’s EBITDA is projected to increase from $701 million to $892 million, with capital expenditures declining substantially as growth projects complete. This transition will mark a FCF inflection point, enabling substantial distribution increases. Management’s commitment to shareholder returns, coupled with potential divestitures and a focus on maximizing FCF, should support a re-rating of GEL’s stock, presenting a 136.7% upside.
Genesis Energy, L.P. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held GEL at the end of the second quarter which was 2 in the previous quarter. While we acknowledge the potential of GEL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as GEL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.