Macquarie Infrastructure plunges after cutting dividend

Shares of Macquarie Infrastructure Corporation (MIC) have plunged after the company announced a 31% reduction in its dividend payout. Following the news, both SunTrust and JPMorgan cut their recommendations on the stock to neutral-equivalent ratings. RESULTS, DIVIDEND CUT: Last night, Macquarie Infrastructure reported fourth quarter earnings per share of $4.13 and revenue $471.21M. The company also said it sees 2018 EBITDA of $690M-$720M. Additionally, Macquarie Infrastructure announced that it has made the decision to reduce its 2018 dividend in favor of internally funding the repurposing of the assets at International-Matex Tank Terminals and to take advantage of the incentives to invest in growth projects that are a part of recent tax reform. "We believe that our guidance for a dividend of $1 per share, per quarter, in 2018 strikes a balance between continuing to return the majority of our Free Cash Flow to shareholders in the form of a dividend and strengthening our balance sheet in support of future dividend growth," said Christopher Frost, CEO. MOVING TO THE SIDELINES: Following the announcement, SunTrust analyst Tristan Richardson downgraded Macquarie Infrastructure to Hold from Buy and lowered his price target on the shares to $60 from $75. With an unexpected 2018 shortfall in the company's International-Matex Tank Terminal leading to the reduction in its dividend payout, the analyst told investors he believes Macquarie Infrastructure is unlikely to outperform in the medium-term. Further, Richardson argued that while the company has growth opportunities both in Aviation and Power, and potential cash flow catalysts from asset sales, these opportunities do not outweigh the utilization headwind in IMTT over the next year. Meanwhile, JPMorgan analyst Jeremy Tonet also downgraded Macquarie Infrastructure to Neutral citing its weaker than expected 2018 EBITDA guide. The analyst noted that he believes Macquarie likely moves into a "show me" camp for investors and could lose a portion of its income-oriented investor base. While Tonet acknowledged he can understand the logic to at least halting dividend growth to increase self-funding, the magnitude of the cut surprises him and will likely lead to some rotation by income investors. SHARES OVERSOLD: Commenting on the selloff in Macquarie Infrastructure shares after management announced the cut of its future dividend to $1/quarter from $1.44/quarter, Oppenheimer analyst Ian Zaffino argued that the stock has fallen "sufficiently" to account for a now marred dividend track record. Earlier in the day, Zaffino had lowered his price target on the stock to $75 from $100, calling the decision to reduce the company's dividend "surprising." In a second note to investors, he further lowered his price target on the shares to $60 from $75, while maintaining a Buy rating on the name. PRICE ACTION: In afternoon trading, Macquarie Infrastructure has dropped 40% to about $38 per share.