On May 21, Zacks Investment Research downgraded Tulsa,
Okla.-based publicly traded energy pipeline partnership,
Magellan Midstream Partners L.P.
) to a Zacks Rank #3 (Hold).
Why the Downgrade?
Magellan Midstream primarily transports, stores and distributes
refined petroleum products. The results for the partnership are
directly exposed to the refined product demand, which is
inherently volatile and subject to complex market forces, thereby
affecting the partnership's revenues, cash flows and
Moreover, although Magellan Midstream owns an attractive
portfolio of energy infrastructure assets that generate stable
and recurring fee and tariff-based revenues, unfavorable
regulatory changes by the Federal Energy Regulatory Commission
(FERC) would impact the partnership's results. This will also
increase the borrowing costs of Magellan Midstream and can
depress the market value of its limited partner units.
Besides that, Magellan Midstream, like all other master limited
partnerships (MLP), typically depends on equity and debt markets
for financial growth. Market turmoil resulting from issues such
as the recent subprime crisis, which hinders access to capital
markets, might impact its growth prospects.
Additionally, with the growing popularity of renewable sources of
energy such as wind and solar, companies associated with
traditional sources of energy are facing tough competition.
Although expensive, many customers are opting for these
sustainable sources of energy for the environmental-friendly
nature. This will likely impact the demand for the partnerships'
Stocks to Consider
In the energy sector, three firms that are expected to
significantly outperform the broader U.S. equity market over the
next one to three months are
EPL Oil & Gas Inc.
). All three firms currently retain a Zacks Rank #1 (Strong Buy).
CNOOC LTD ADR (CEO): Free Stock Analysis
EPL OIL&GAS INC (EPL): Free Stock Analysis
INTEROIL CORP (IOC): Free Stock Analysis
MAGELLAN MDSTRM (MMP): Free Stock Analysis
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