THE SPARK: Analyst Brett Reilly lowered his rating to "Underperform" from "Neutral" after the San Antonio-based company said in a U.S. Securities and Exchange Commission filing that it was notified by TexStar that it wants to terminate NuStar's pending acquisition of its natural gas liquids pipeline and other assets.
THE BIG PICTURE: The $100 million deal had been expected to close in the first quarter. Once that happened, NuStar had planned to spend $300 million to connect the assets with its South Texas system, Reilly said.
NuStar said in its Friday filing that it doesn't believe TexStar has the right to terminate the deal and is evaluating its legal options. But the company said that if it doesn't complete the acquisition, it doesn't expect it to have a significant effect on its financial results.
THE ANALYSIS: Despite that reassurance, Reilly said he still thinks NuStar's distribution is at risk for a cut, saying that the acquisition was a key to the company being able to cover its distribution by 2014.
Based on his estimates, Reilly said he thinks the company won't be able to cover its distribution until 2016.
He lowered his earnings estimates and cut his price target on the stock to $47 from $49.
THE SHARES: Down $3.53, or 7 percent, to $46.97 in afternoon trading, after dropping as low as $46.54 earlier in the session. Over the past 52 weeks, the company's shares have traded between $38.43 and $62.64.