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Strong Buy on Magellan Midstream

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On Aug 10, 2013, Zacks Investment Research upgraded pipeline operator, Magellan Midstream Partners LP (MMP - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Magellan Midstream witnessed rising earnings estimates on the back of excellent second-quarter 2013 earnings. In fact, this Tulsa, Okla.-based oil distributor delivered positive earnings surprises in three of the last four quarters with an average beat of 3.11%. The long-term expected earnings growth rate for the partnership also stands at an impressive 11.9%.     

On Aug 1, Magellan Midstream reported better-than-expected second-quarter earnings, on the back of strong activities from transportation and terminal operations. The partnership posted second-quarter adjusted earnings per unit (EPU) of 65 cents, easily beating the Zacks Consensus Estimate of 53 cents. Magellan Midstream’s performance also improved considerably from the year-ago adjusted profit of 51 cents per unit.

Recently, Magellan Midstream raised its second-quarter 2013 cash distribution by 5% sequentially and 13% year over year to 53.25 cents per unit ($2.13 per unit annualized). Moreover, management hiked its expected distributable cash flows for full-year 2013 by $50.0 million to $630.0 million. It also announced increased annual distribution growth targets of 16% and 15% for 2013 and 2014, respectively.

Additionally, Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generates 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 petroleum terminals with more than 80 million storage barrels.

Based on these bullish factors, an upward estimate revision has been obvious in recent times. The Zacks Consensus Estimate for 2013 has increased by 10.7% to $2.49 per unit, as all 9 estimates were revised higher over the last 30 days.   

Other Stocks to Consider

Other energy firms that are expected to offer value in the next one to three months are Cabot Oil & Gas Corporation (COG - Free Report) , Dril-Quip Inc. (DRQ - Free Report) and Pembina Pipeline Corporation (PBA - Free Report) . All three stocks carry a Zacks Rank #1 (Strong Buy).      

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