Bullish on Magellan Near-Term

Units of Magellan Midstream Partners L.P. (MMP - Analyst Report) hit a 52-week high of $60.72 on Friday, April 8. The oil pipeline and storage partnership has seen its unit price climb approximately 26% since the end of August last year, as investors have been buying the stock for its attractive fundamentals and positive outlook. The turnaround in fuel prices amid recent optimism about economic recovery has added to this bullishness.

Magellan Midstream, which competes in the ‘Oil/Gas Production Pipeline MLP’ industry with firms like TC PipeLines L.P. (TCLP) and Pioneer Southwest Energy Partners L.P. (PSE - Snapshot Report) has a Zacks #2 Rank (Buy rating) in the short run.

Magellan Midstream Partners owns a high-quality and diverse portfolio of midstream assets that generate stable and recurring revenues by way of long-term fee-based contracts. We also appreciate Magellan’s low cost of capital and strong distribution coverage. Over the last few years, the partnership has consolidated its position in the midstream business, achieved through a combination of organic efforts and accretive acquisitions.

Magellan has established a track record of consistent distribution growth – its current quarterly distribution of 75.75 cents per unit ($3.03 per unit annualized) is up by 189% since its initial public offering (IPO) at the beginning of 2001.

Overall, the partnership – with more than $500 million of potential projects under development – has an attractive growth potential, and maintains a sound liquidity position.

As such, we believe Magellan Midstream is favorably positioned to continue to accelerate revenue and earnings growth over the next few quarters.

Tulsa, Oklahoma-based Magellan Midstream Partners is a master limited partnership (MLP) that owns and operates a diversified portfolio of energy infrastructure assets. The partnership primarily transports, stores and distributes refined petroleum products and to a lesser extent, ammonia.

In 2010, the partnership’s pipeline volumes comprised 54% gasoline, 34% distillates (which include diesel fuels and heating oil) and 8% Liquefied Petroleum Gas (LPG)/aviation fuel, and 4% crude oil. Magellan conducts its operations in three segments: Petroleum Products Pipeline System, Petroleum Products Terminals and Ammonia Pipeline System.

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