We are upgrading our long-term recommendation on
Magellan Midstream Partners L.P
) to Outperform, based on its better operating results, various
growth projects and strong cash distribution level.
MAGELLAN MDSTRM (MMP): Free Stock Analysis
OCCIDENTAL PET (OXY): Free Stock Analysis
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Tulsa, Oklahoma-based Magellan Midstream Partners is a master
limited partnership that owns and operates a diversified portfolio
of energy infrastructure assets, capable of generating stable and
recurring fee- and tariff-based revenues.
The partnership performed impressively during the second quarter of
2012, aided by higher demand and rates for its services. Quarterly
earnings per unit came in at $1.01 (excluding mark-to-market
commodity-related pricing adjustments), striding ahead of the Zacks
Consensus Estimate of 87 cents and the year-ago adjusted profit of
Over the last few months, Magellan Midstream entered into a number
of alliances to improve its operations. Apart from increasing the
capacity of the Crane-to-Houston crude oil pipeline, Magellan
Midstream is also engaged in a number of collaborations - Double
Eagle joint venture pipeline project, along with the associated
Corpus Christi storage facility venture. The partnership is also
approaching completion of the storage units at the Tulsa pipeline
terminal and Galena Park marine facility.
In early July, Magellan Midstream along with
Occidental Petroleum Corporation
) announced its plans to set up a joint venture to build a 400-mile
long oil transport pipeline - The BridgeTex.
We also 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.
For 2012, the partnership plans to spend approximately $500 million
on growth, with expenditures of $200 million thereafter required to
complete these projects. Additionally, the partnership continues to
look out for more than $500 million of potential growth projects in
the earlier stages of development.
Additionally, operating within the energy sector, Magellan
Midstream remains highly susceptible to market risks including
commodity prices and interest rate. The partnership has adopted the
strategy of entering into derivative agreements to control the
effects of these risks.
Magellan Midstream has also established a track record of
consistent distribution growth - its current quarterly distribution
of $0.9425 per unit ($3.77 per unit annualized), up 12.2%
sequentially and 20.1% year over year. Management's aim to reach
annual distribution growth of 18% for 2012 and increase the payout
by an additional 10% in 2013 is expected to unlock significant
Magellan Midstream currently retains a Zacks #1 Rank, which
translates into a Strong Buy rating for a period of one to three