MPLX LP (MPLX - Free Report) has lost 6.2% in the past six months, and the unfavourable trend is likely to continue as the midstream energy partnership has witnessed several negative traits and downward revisions over the past few months. As such, the Findlay, OH-based master limited partnership currently carries a Zacks Rank #4 (Sell).
The past six months’ pricing chart shows that MPLX has underperformed the Zacks Oil And Gas - Production And Pipelines industry. Notably, all the stocks belonging to the industry have collectively gained 9.9% in the said period.
Notably, unplanned downtime at the Houston complex and NGL production curtailments stemmed from delayed start-up of Mariner East 2 led to lower-than-expected profit in the Gathering and Processing segment in the fourth quarter. Thus, operating income of $217 million from this unit missed the Zacks Consensus Estimate of $419 million by a huge margin.
Another concern is that the partnership’s natural gas processing operations in the Utica shale play, a prolific region of the Appalachian Basin, have been witnessing a declining trend. In 2017, natural gas processed from Utica operations, through the Utica EMG joint venture, declined 8% from a year ago to 984 million cubic feet per day (MMcf/d).
The processed amount further declined to 886 MMcf/d in 2018, depicting weakness in processing activities in the prolific shale play, primarily due to its non-operating holdco structure. If this trend continues, it will hurt the partnership’s earning capabilities from a vital source.
The partnership’s direct operating expenses skyrocketed from $959 million in 2016 to $1.2 billion and $1.9 billion in 2017 and 2018, respectively. Also, direct operating expenses jumped 39.2% in fourth-quarter 2018 from the year-ago level. This has caused a lower-than-expected profit level in the last reported quarter. MPLX reported earnings of 52 cents per unit, lagging the Zacks Consensus Estimate of 68 cents.
The trend of surging costs will hurt the partnership’s bottom line in the coming quarters. Moreover, the Zacks Consensus Estimate for 2019 earnings per share has been revised downward to $2.51 from $2.53 per share over the past 60 days.
Markedly, as of Dec 31, 2018, the partnership’s total debt was $13.4 billion, while cash and cash equivalent balance was only $68 million. This reflects weakness in MPLX’s balance sheet. The partnership’s significant reliance on debt is reflected in debt-to-capitalization ratio of 67.7%, much higher than its industry’s 48.5%. This can restrict the partnership’s financial flexibility.
As it can be seen, the partnership’s surging costs and weak Utica operations are weighing on bottom-line prospects. Balance sheet weakness is also restricting its financial flexibility. Given these headwinds, ordinary investors should avoid betting on MPLX for now.
Stocks to Consider
Investors interested in the energy sector can opt for some better-ranked stocks as given below:
Denver, CO-based Antero Resources Corp. (AR - Free Report) is an upstream energy company. In 2019, the company’s top line is expected to increase nearly 5% year over year. The stock currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Calgary, Canada-based TransCanada Corp. (TRP - Free Report) is midstream energy company. In the trailing four quarters, the company delivered average positive earnings surprise of 19%. The stock currently has a Zacks Rank #2 (Buy).
Houston, TX-based Altus Midstream Co. (ALTM - Free Report) is also midstream energy company. In 2019, the company’s top line is expected to increase more than 300% year over year. The stock currently has a Zacks Rank #2.
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