We are maintaining a Neutral recommendation on
Magellan Midstream Partners, L.P.
(
MMP
), a master limited partnership (MLP) that owns and operates a
diversified portfolio of energy infrastructure assets.
Tulsa, Oklahoma-based Magellan Midstream delivered a mixed
performance for the first quarter of 2012. The partnership missed
our earnings per unit projection but was able to beat on
revenues.
Magellan Midstream is characterized by a cost effective,
low-risk business structure and an attractive energy infrastructure
asset base. The partnership's assets include the longest U.S.
refined petroleum products pipeline system, access to more than 40%
of refining capacity in the continental U.S. along with imports,
and 85 petroleum terminals with more than 80 million barrels of
storage.
Magellan Midstream has also established a track record of
consistent distribution growth - its current quarterly distribution
is 84 cents per unit ($3.36 per unit annualized), up 3.0%
sequentially and 9.0% year over year. Management's aim to reach
annual distribution growth of 9% for 2012 and 8% to 10% for 2013 is
expected to unlock significant unitholder value.
We believe that lucrative acquisitions and organic growth
projects have contributed immensely toward Magellan Midstream's
development. Over the last 8 years, the partnership has invested
nearly $2.5 billion for various ventures and takeovers. Currently,
the partnership has $680 million of organic growth projects that
will likely generate profitable returns for Magellan Midstream in
the coming months.
However, MLPs like Magellan Midstream typically depend on equity
and debt markets for growth finance. Market turmoil resulting from
issues such as the recent subprime crisis, which hinders access to
debt/equity markets, are anticipated to impact the partnership's
growth prospects.
Additionally, the activities of Magellan Midstream are directly
exposed to refined product demand, which are inherently volatile
and subject to complex market forces. Actual demand could differ
significantly from our expectations, thereby affecting the
partnership's revenues, cash flows and distributions.
We also remain concerned regarding the lower-than-expected
demand for refined products (which adversely affects pipeline and
terminal throughput) and cost overruns on expansion projects (which
lead to lower returns).
Hence, at current levels, we believe that the partnership has no
strong catalyst to push the stock any higher. Magellan Midstream,
which operates with other group members such as
MarkWest Energy Partners L.P.
(
MWE
) and
Regency Energy Partners L.P.
(
RGP
), currently, retains a Zacks #3 Rank, which translates into a
short-term Hold rating.
MAGELLAN MDSTRM (MMP): Free Stock Analysis
Report
MARKWEST EGY PT (MWE): Free Stock Analysis
Report
REGENCY ENERGY (RGP): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research