Oil & Gas Stocks

Magellan Midstream Partners LP Valuation – August 2016 $MMP

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Magellan Midstream Partners LP (MMP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Magellan Midstream Partners, L.P. is engaged in the transportation, storage and distribution of refined petroleum products and crude oil. The Company’s business segments include Refined Products, Crude Oil and Marine Storage. The Company’s asset portfolio, including the assets of its joint ventures, consist of the Company’s refined products segment, including over 9,500 mile refined products pipeline system with approximately 50 terminals, as well as over 30 independent terminals not connected to the its pipeline system and its approximately 1,100-mile ammonia pipeline system; its crude oil segment, including approximately 1,700 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of over 20 million barrels, of which approximately 14 million is used for leased storage, and its marine storage segment, consisting of over five marine terminals located along coastal waterways with an aggregate storage capacity of approximately 30 million barrels.

MMP Chart

MMP data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MMP – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,105,243,888 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.54 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 363.68% Pass
6. Moderate PEmg Ratio PEmg < 20 21.32 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.85 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.54 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -10.90 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MMP value chart August 2016

EPSmg $3.29
MG Growth Estimate 15.00%
MG Value $126.72
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $47.72
MG Value based on 0% Growth $27.98
Market Implied Growth Rate 6.41%
Current Price $70.17
% of Intrinsic Value 55.38%

Magellan Midstream Partners, L.P. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.61 in 2012 to an estimated $3.29 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.41% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Magellan Midstream Partners, L.P. revealed the company was trading above its Graham Number of $26.09. The company pays a dividend of $3.09 per share, for a yield of 4.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.32, which was below the industry average of 55.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-17.65.

Magellan Midstream Partners, L.P. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

MMP charts August 2016

Net Current Asset Value (NCAV) -$17.65
Graham Number $26.09
PEmg 21.32
Current Ratio 0.54
PB Ratio 7.85
Current Dividend $3.09
Dividend Yield 4.41%
Number of Consecutive Years of Dividend Growth 17

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $385,582,000
Total Current Liabilities $713,662,000
Long-Term Debt $3,574,898,000
Total Assets $6,448,204,000
Intangible Assets $105,597,000
Total Liabilities $4,410,006,000
Shares Outstanding (Diluted Average) 227,983,000

Earnings Per Share History

Next Fiscal Year Estimate $3.38
Dec2015 $3.59
Dec2014 $3.69
Dec2013 $2.56
Dec2012 $1.92
Dec2011 $1.83
Dec2010 $1.42
Dec2009 $1.11
Dec2008 $0.70
Dec2007 $0.49
Dec2006 $1.12
Dec2005 $1.02
Dec2004 $0.86
Dec2003 $1.02
Dec2002 $0.92
Dec2001 $0.47

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.29
Dec2015 $3.07
Dec2014 $2.64
Dec2013 $1.99
Dec2012 $1.61
Dec2011 $1.34
Dec2010 $1.05
Dec2009 $0.87
Dec2008 $0.78
Dec2007 $0.85
Dec2006 $1.01
Dec2005 $0.92
Dec2004 $0.80
Dec2003 $0.68
Dec2002 $0.43
Dec2001 $0.16

Recommended Reading:

Other ModernGraham posts about the company

Magellan Midstream Partners LP Analysis – Initial Coverage $MMP

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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