In the past six months, units of Magellan Midstream Partners L.P. (MMP - Free Report) have risen 4.1% against the 8.7% decline of the industry it belongs to. The company is likely to maintain this uptrend on the back of its impressive earnings performance and robust key end markets.
Let’s take a look into the factors why Magellan Midstream has enough momentum to continue with:
Strong Earnings Performance
The owner and operator of a diversified portfolio of energy infrastructure assets delivered second-quarter 2019 adjusted earnings per unit of $1.20, surpassing the Zacks Consensus Estimate of $1.07 and the firm’s forecast of $1.13 as well. Higher volumes from its crude oil pipelines led to this outperformance. Stronger contribution from Refined Products and Crude Oil units also aided the results. Moreover, the bottom line was higher than the year-ago earnings of $1.05 a unit.
Further, quarterly revenues of $701.7 million topped the Zacks Consensus Estimate of $653 million. The top line was above the year-ago level of $644.1 million too.
History shows that Magellan Midstream has had strong returns on most of its invested capital. Moreover, the partnership maintains a robust distribution coverage of 1.2x, reflecting its ability to continue paying dividends or growing its quarterly payouts.
Encompassing 9,700 miles with 53 terminals and boasting 45 million barrels of storage, Magellan Midstream has the longest refined petroleum products pipeline system in the United States. In fact, it has access to nearly half the country’s refining capacity. This enables the midstream operator to sustain a compelling competitive edge.
Primarily, a transporter of gasoline and diesel fuel, Magellan Midstream’s straight-forward fee-based business model makes it less susceptible to volatile commodity prices. Rather, the partnership derives its revenues from volume-based long-term contracts.
Pleasant Earnings Surprise History
Magellan Midstream beat the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 3.70%.
Healthy DCF & Balance Sheet
Distributable cash flow in the last reported quarter came in at $314.8 million, up from $266.6 million in the year-ago period.
Notably, on Jul 25, the firm announced second-quarter cash distribution of $1.0125 per unit ($4.05 on an annualized basis), representing 6% and 1% annual and sequential growth, respectively. This marked the 69th profit-distribution hike since the partnership went public. The new dividend was paid out on Aug 14 to unitholders of record as of Aug 7.
As of Jun 30, the partnership had cash and cash equivalents of $3.1 million, and a long-term debt of $4,407.8 million (with a debt-to-capital ratio of 62.6%).
This Oklahoma-based firm recently announced that it has started transporting refined products from its newly-built pipeline. The pipeline running from East Houston terminal to Hearne, TX is 135-mile long with a diameter measuring 20 inches.
The pipeline has provided Magellan Midstream with additional capacity of 85,000 barrels of oil per day (bpd) in order to meet demand in the partnership’s Texas and Midcontinent markets.
The project is backed by valuable credit from customers with strong commitments. Nearly, $425 million worth capital has been spent on this construction and in return, the company expects an 8x EBITDA multiple from the committed volume.
Apart from the East Houston terminal-to-Hearne pipeline, Magellan Midstream is working on expanding an existing pipeline segment between Hearne and Dallas. This extension is done by building a 140-mile, 20-inch pipeline from Hearne to Alexander, leading to an additional capacity of 75,000 bpd. The project is expected to come online in mid-2020.
2019 Upbeat Guidance
For the full year, management now expects distributable cash flow of approximately $1.22 billion, up from the prior forecast of $1.18 billion. Also, it is targeting annual distribution growth of 5%. Projection for full-year earnings per unit has been revised upward to $4.20 from the previous guidance of $4.05. The partnership plans to invest approximately $1.1 billion in expansion projects during 2019.
Zacks Rank & Other Key Picks
Magellan Midstream carries a Zacks Rank #2 (Buy). Other top-ranked players in the energy space include BP Midstream Partners (BPMP - Free Report) , EQT Corporation (EQT - Free Report) and TC Energy Corporation (TRP - Free Report) , each carrying the same solid Zacks Rank as Magellan Midstream. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BP Midstream’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters.
EQT earnings beat the Zacks Consensus Estimate in three of the preceding four quarters.
TC Energy earnings beat the Zacks Consensus Estimate in each of the last four quarters.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>