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3 Refining & Marketing MLP Stocks for Your Basket

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Amid the turbulent economic condition of recent years, the Zacks Oil and Gas - Refining & Marketing MLP industry has shown resilience. The broader fuel distribution and retail sector has demonstrated impressive stability, with many companies investing in expansion. While uncertainties persist regarding oil consumption and fuel market volatility, select stocks like Sunoco LP (SUN - Free Report) , Global Partners LP (GLP - Free Report) and NGL Energy Partners LP (NGL - Free Report) show promise for above-average performance and stock appreciation. These firms possess characteristics that can mitigate the impact of inflation, and their defensive posture and reliance on fee-based business models render them well-equipped for an uncertain market environment, particularly amid rising consumer prices.

Industry Overview

Master limited partnerships (or MLPs) differ from regular stocks since interests in them are referred to as units, and unitholders (not shareholders) are partners in the business. Importantly, these low-risk hybrid entities bring together the tax benefits of a limited partnership with the liquidity of publicly traded securities that earn a stable income. The assets owned by these partnerships are typically oil and natural gas pipelines and storage/infrastructure facilities. The Zacks Oil and Gas - Refining & Marketing MLP industry is a sub-sector of this business model. These firms operate refined product terminals, storage facilities and transportation services. They are involved in selling refined petroleum products (including heating oil, gasoline, residual oil, jet fuel, etc.) and a plethora of non-energy materials (like asphalt, road salt, clay and gypsum).

3 Trends Defining Oil and Gas - Refining & Marketing MLP Industry's Future

The Appeal of MLPs for Lower Risk Returns: Amid the current oil market volatility, characterized by concerns over demand fluctuations and geopolitical tensions, a prudent strategy for investors is to consider master limited partnerships (MLPs). These MLPs offer attractive returns with significantly reduced risk exposure. Their assets, including oil and natural gas pipelines and storage facilities, generate stable fee-based revenues from long-term contracts, minimizing direct commodity price risks. Over the long run, these contracts ensure consistent cash flow regardless of market cycles. Furthermore, a considerable portion of the agreements operates on a take-or-pay basis, guaranteeing MLPs payment irrespective of commodity transportation volumes.

Prioritizing Financial Strength and Investor Returns: Throughout the challenges of 2020, major midstream players in refining and marketing remained resilient, thanks to their limited exposure to commodity price fluctuations. As they navigate the current business landscape, these partnerships are focusing on generating free cash flow after distribution payments to reduce debt and fortify their financial standing. The increasing free cash flows present opportunities for enhancing investor returns through share buybacks and distribution increases. Moreover, the growth in distributions offers investors a means to counteract some of the value erosion caused by the prevailing high inflationary conditions.

Dynamics of Refining Margins in a Changing Oil Market: While refining margins remain strong, they have notably eased compared to the exceptional levels seen in 2022. Crack spreads, indicative of the difference between refined product and crude oil prices, have also seen a decline. The potential consequences of elevated inventories and demand uncertainties may exacerbate the pressure on profitability. Despite price controls and sanctions, Russia's redirection of oil exports to India and China has hindered the anticipated tightening of product supplies. This trend indicates a recent downturn in global refinery margins, affecting the earnings of downstream firms.

Zacks Industry Rank Indicates Positive Outlook

The Zacks Oil and Gas – Refining & Marketing MLP is a seven-stock group within the broader Zacks Oil – Energy sector. The industry currently carries a Zacks Industry Rank #20, which places it in the top 8% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Considering the encouraging dynamics of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Outperforms Sector & S&P 500

The Zacks Oil and Gas – Refining & Marketing MLP industry has fared better than the broader Zacks Oil - Energy Sector as well as the Zacks S&P 500 composite over the past year.

The industry has gained 44.3% over this period compared with the broader sector’s increase of 12.6%. Meanwhile, the S&P 500 has gone up 31.8%.

One-Year Price Performance

Industry's Current Valuation

Since midstream-focused oil and gas partnerships use fixed-rate debt for most of their borrowings, it makes sense to value them based on the EV/EBITDA (enterprise value/ earnings before interest tax depreciation and amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.

On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA) ratio, the industry is currently trading at 10.32X, lower than the S&P 500’s 15.12X. It is, however, well above the sector’s trailing 12-month EV/EBITDA of 4.18X.

Over the past five years, the industry has traded as high as 14.93X and as low as 5.76X, with a median of 8.96X, as the chart below shows.

Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio (Past Five Years)



3 Oil and Gas - Refining & Marketing MLP Stocks to Snap Up

Sunoco LP participates in the transportation and supply phase of the U.S. petroleum market across a number of states. It also focuses on motor fuel distribution to convenience stores, independent dealers and commercial customers. SUN pays out 84.20 cents quarterly distribution ($3.368 per unit annually), which gives it a 5.5% yield at the current unit price.

Over the past 60 days, the Zacks Consensus Estimate for Sunoco’s 2024 earnings has moved up 29.5%. The 2024 Zacks Consensus Estimate for SUN indicates 35.9% year-over-year earnings per share growth. Valued at around $6.2 billion, this Zacks Rank #1 (Strong Buy) company has gained 43.2% in a year.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: SUN


Global Partners LP is a vertically integrated energy partnership focused on the distribution of gasoline, distillates, residual oil and renewable fuels, apart from owning several refined-petroleum-product terminals. Unlike most energy operators, which maintained their payout through the coronavirus-induced downturn, Global Partners continued to increase distributions.

The Zacks Consensus Estimate for Tulsa, OK-based Global Partners indicates 3.7% earnings per unit growth over 2023. The firm, which pays out 70 cents quarterly distribution to yield more than 6%, beat the Zacks Consensus Estimate for earnings twice in the trailing four quarters and missed in the other two. Valued at around $1.6 billion, this Zacks Rank #1 stock has gone up 49.3% in a year.

Price and Consensus: GLP



NGL Energy Partners LP is an MLP that owns water disposal wells, the Grand Mesa oil pipeline and a wholesale propane/butane business. In particular, NGL Energy Partners’ one-of-a-kind water business is supported by long-term, fixed-fee contracts. The highly differentiated assets make it difficult to replicate the partnership’s infrastructure system and give it a competitive advantage.

The Zacks Consensus Estimate for NGL Energy Partners fiscal 2024 indicates 11.1% earnings per unit growth over fiscal 2023. The midstream operator, which carries a Zacks Rank #2 (Buy), has a Value Score of A. NGL Energy Partners’ current market cap is roughly $775.2 million, while the stock has skyrocketed 109.7% in a year.

Price and Consensus: NGL


See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Sunoco LP (SUN) - free report >>

NGL Energy Partners LP (NGL) - free report >>

Global Partners LP (GLP) - free report >>

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