Magellan Raises 3Q Distribution

Pipeline operator Magellan Midstream Partners, L.P. (MMP - Analyst Report) raised its third quarter 2011 cash distribution by 1.9% sequentially and 7.4% year over year to 80 cents per unit ($3.20 per unit annualized).

The cash distribution is up 205% since its initial public offering (IPO) in the beginning of 2001. Magellan’s new distribution is payable on November 14 to unitholders of record as on November 1, 2011.

Tulsa, Oklahoma-based Magellan Midstream 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. The oil distributor conducts its operations in three segments: Petroleum Products Pipeline System, Petroleum Products Terminals and Ammonia Pipeline System.

The proposed hike in distribution at Magellan is in sync with its goal of raising the annual distribution by 7% in 2011. The partnership has a proven history of distribution growth with 38 quarterly increases since inception.

Magellan Midstream, which is slated to report its third-quarter results on November 2, has bolstered its cash flows recently on the back of benefits from acquired assets and growth projects, escalating demand for petroleum products and improved petroleum prices.

Magellan Midstream units currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

We appreciate Magellan’s highly stable/recurring cash flows, as well as its low cost of capital and strong distribution coverage. Additionally, the partnership – with more than $500 million of potential projects under development – has attractive growth potential, and maintains a sound liquidity position.

However, we still believe that the operating scenario for pipeline operators will remain critical. Magellan is also susceptible to lower-than-expected demand for refined products, commodity price fluctuations and cost overruns on expansion projects. As such, we believe Magellan Midstream’s current valuation adequately reflects its fairly balanced risk/reward profile with limited upside potential.

Magellan Midstream competes in the ‘Oil/Gas Production Pipeline MLP’ industry with firms like Enterprise Products Partners L.P. (EPD - Analyst Report), Plains All American Pipeline L.P. (PAA - Analyst Report), Targa Resources Partners L.P. (NGLS - Snapshot Report) etc.

Read the full analyst report on EPD

Read the full analyst report on PAA

Read the full analyst report on MMP

Read the full analyst report on NGLS