Magellan Midstream Partners
), Zacks Rank #1 (Strong Buy), is a publically traded partnership
which stores, transports, and distributes petroleum products.
This stock is worth exploring given the political chaos in
the Middle East, the hunt for yield in the face of rising treasury
yields, and the North American energy boom. Further, Magellan
is showing strong upward earnings revisions momentum.
A hedge against geopolitical factors:
The social unrest in Egypt and Syria has the chance of spilling
into the broader Middle East and supporting a risk premium in the
crude oil market. Investing in an energy based asset may help
to insult your portfolio against geopolitical risk and higher
energy prices. Moreover, the events in the Middle East put a
spotlight on the importance of North American energy production and
transport. Strong and growing U.S. energy activity is a
national security issue.
A healthy and growing payout:
Magellan has a deep history of distribution growth with 44
quarterly increases and a compounded annual growth rate in
distribution of 12% between 2001 and Q1 2013. At the same
time, it has an attractive distribution yield just below
4.0%. The company recently raised its fiscal year 2013
distributable cash flow by $50 mln to $630 mln.
Magellan's yield is comfortably above the 10 year treasury yield
of about 2.80% and is yielding similar to the Investment Grade
iShares Corporate Bond ETF (
). A rising payout should help cushion the impact of higher
rates on your portfolio.
At a recent conference, the company highlighted that fee based
and low risk activities accounted for 85% or more of its operating
margin. S&P recently raised Magellan's credit rating to BBB+
from BBB hinting that credit quality is improving. The company is
expected to have a distribution coverage ratio greater than one for
the foreseeable future.
A way to capture rising U.S. oil production:
U.S. oil production remains vibrant, and is expected to
continuing growing. U.S. production rose 20.5% year over year in
the 4-weeks ending August 9
. Production is approximately 7.5 mbd, and the U.S. Energy
Information Agency has said U.S. oil production could reach 10 mbd
by 2030. There will be plenty of need for transport and storage
facilities. The company has been playing up the start
of its Longhorn pipeline and its Double Eagle joint venture.
The latest 10-K indicated that Magellan operated 9,600 miles of
pipelines through 14 states in the midcontinent region. This
enables it to exploit production in North Dakota, Colorado, and
Texas. It is offering investors a way to profit from the Permian
Basin and Eagle Ford energy formations.
Earnings estimates are rising:
Over the last 30 days, the 2013 Zacks Consensus Earnings per
Share Estimate has risen 10% to $2.49, while the 2014 Zacks
Consensus Earnings per Share Estimate has increased 5.5% to $2.66.
In the past 30 days, estimates have been raised nine times for 2013
and ten times for 2014. There have been no estimate
Magellan is worth exploring given its strong growth in earnings,
healthy payout, and operation in a business with supportive macro
fundamentals. You don't have to travel the earth to find a
good investment prospect with Magellan.
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MAGELLAN MDSTRM (MMP): Free Stock Analysis
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