Magellan Midstream Hits New High on '14 Data - Analyst Blog

Pipeline operator Magellan Midstream Partners LP MMP hit a 52-week high of $73.57 on Apr 11. In the past three months, the partnership has witnessed nearly 18% growth in unit price.

The recent bullishness is primarily attributable to the pretty numbers stated by the partnership in its 2014 analyst meet held on Apr 8. For 2014, the partnership anticipates distributable cash flow of $730 million, up 9% from 2013. This hike came on the back of recent growth projects undertaken by the partnership. The Tulsa, OK-based oil distributor also boasts a strong history of distribution growth with 47 quarterly hikes.

Magellan Midstream expects fee-based, low-risk activities to comprise around 85% of the operating margin going forward, thus having a low exposure to the volatile commodity-related activities.

In 2013, the refined products segment contributed about 71% of Magellan Midstream's operating margin. Year-over-year growth is expected in this segment driven by higher volume and rates. Existing commitments for the refined products pipelines further add to the partnership's financial stability.   

Magellan Midstream expects a substantial jump in its crude oil segment driven by an increase in the volume shipped. Though the marine storage segment is expected to see a minor decrease in operating margin, the partnership stated that robust demand for marine storage exists, with average utilization of over 90%.

Lucrative acquisitions and organic growth projects have been major contributors to the partnership's development. Over the past 10 years, Magellan Midstream has spent $3.7 billion in these activities, with another $950 million to be invested during 2014 to 2016.

While organic growth projects drive development for Magellan Midstream, these require significant capital investments. Further, the gap between capital outlay and income generation from these projects could stall growth in the meantime.

Zacks Rank & Better Stocks

Magellan Midstream currently retains 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.

Meanwhile, one can consider better-ranked players from the industry like Enterprise Products Partners L.P. EPD, Spectra Energy Partners, LP SEP and Targa Resources Partners LP NGLS. All these stocks hold a Zacks Rank #2 (Buy).