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On June 5, Zacks Investment Research upgraded Tulsa, OK-based publicly traded energy pipeline partnership Magellan Midstream Partners L.P. (MMP - Analyst Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Magellan Midstream’s strong portfolio of energy infrastructure assets, capacity expansion plans and a sound liquidity position make it a great stock to own. Other positive attributes include its investment grade rating and strong track record for distribution growth.

Detailed Analysis

Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. This includes 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, which recently posted stellar first quarter earnings fueled by a combination of higher rates and an increase in transportation volumes, has established a track record of consistent distribution growth. Its current quarterly distribution of 61.25 cents per unit ($2.45 per unit annualized) is up by 367% since its initial public offering (IPO) at the beginning of 2001.

Lucrative acquisitions and organic growth projects have made major contributions toward Magellan Midstream’s development. Over the last decade, the partnership has invested around $3.7 billion for various ventures and takeovers. Between 2014 and 2016, Magellan Midstream is looking to shell out another $1.1 billion to finish construction projects currently underway. Additionally, the partnership continues to look out for more than $500 million of potential growth projects in the earlier stages of development.

Important projects include the Longhorn Pipeline, BridgeTex Pipeline, and the Eagle Ford joint venture with Kinder Morgan Energy Partners L.P. (KMP - Analyst Report), with a key focus on the Permian Basin. Counting on the success of these developments, Magellan Midstream increased its full-year 2014 distributable cash flows estimate to $810.0 million from $730.0 million. The partnership anticipates annual distribution to grow by 20.0% in 2014 and 15.0% in 2015.

Financially, Magellan Midstream’s conservative financial policy and investment grade credit ratings provide a competitive advantage in accessing capital at reasonable cost. Additionally, with no near-term debt maturities and a $1 billion revolver available under credit facility, the partnership is well equipped to face this highly uncertain period for the economy.

Based on the success of the partnership’s high-quality and diverse portfolio of midstream assets, analysts are predicting strong earnings growth for Magellan Midstream over 2014. The current year Zacks Consensus Estimate of $3.30 represents earnings per unit growth of 28% over 2013.

Other Stocks to Consider

Apart from Magellan Midstream, investors interested in the energy pipeline partnerships may consider stocks like Delek Logistics Partners L.P. (DKL - Snapshot Report) and Boardwalk Pipeline Partners L.P. (BWP - Snapshot Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).

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