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On Mar 22, 2013, units of Magellan Midstream Partners LP (MMP - Analyst Report) reached a 52-week high of $51.90 based on a slew of positive developments.

Late last month, Magellan signed a deal with Plains All American Pipeline LP (PAA - Analyst Report) to buy two refined petroleum products pipeline systems – spread over roughly 800 miles – for about $190 million. The acquisition is likely to be accretive to the partnership immediately with incremental cash flows generated in the coming years.  

Before that, on Feb 5, 2013, Magellan came out with strong fourth quarter earnings. The pipeline operator reported earnings per unit (EPU) of 69 cents (excluding mark-to-market commodity-related pricing adjustments), breezing past the Zacks Consensus Estimate of 65 cents and the prior-year quarter profit of 51 cents. The earnings beat was primarily due to its good contributions from the business segments.

In addition, Magellan raised its fourth-quarter 2012 cash distribution by 3% sequentially and 23% year over year to 50 cents per unit ($2.00 per unit annualized).

Magellan also sports impressive long-term expected earnings growth rate and sales growth rate of 11.20% and 11.92%, respectively.

The partnership 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 the refining capacity in the continental U.S. along with imports and 85 petroleum terminals with more than 80 million barrels of storage.

However, results for Magellan are directly exposed to refined product demand, which are inherently volatile and subject to complex market forces. Actual demand could differ significantly from our expectations, thereby affecting the partnership’s revenues, cash flows and distributions.

As a result, Tulsa, Oklahoma-based Magellan carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Stocks to Consider

Two firms in the energy sector that are expected to significantly outperform the equity markets in the next one to three months are Helmerich & Payne Inc (HP - Analyst Report) and Range Resources Corporation (RRC - Analyst Report). Both of these stocks carry a Zacks Rank #1 (Strong Buy).

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