Oil & Gas Stocks

Magellan Midstream Partners LP Valuation – July 2018 $MMP

Company Profile (excerpt from Reuters): Magellan Midstream Partners, L.P., incorporated on August 30, 2000, is principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. The Company operates through three segments: refined products, crude oil and marine storage. As of December 31, 2016, its asset portfolio, including the assets of its joint ventures, consisted of its refined products segment, consisting 9,700-mile refined products pipeline system with 53 terminals, as well as 26 independent terminals not connected to its pipeline system and its 1,100-mile ammonia pipeline system; its crude oil segment, consisted of approximately 2,200 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of approximately 26 million barrels, of which 16 million are used for contract storage, and its marine storage segment, consisted of five marine terminals located along coastal waterways with an aggregate storage capacity of approximately 26 million barrels.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MMP – July 2018

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 $15,772,946,945 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.63 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 157.11% Pass
6. Moderate PEmg Ratio PEmg < 20 18.48 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.37 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 0.63 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -14.47 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

EPSmg $3.74
MG Growth Estimate 6.28%
MG Value $78.69
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $54.20
MG Value based on 0% Growth $31.77
Market Implied Growth Rate 4.99%
Current Price $69.08
% of Intrinsic Value 87.78%

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 PB ratio. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.64 in 2014 to an estimated $3.74 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.99% 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 within a margin of safety relative to 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 $28.55. The company pays a dividend of $3.52 per share, for a yield of 5.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.48, which was below the industry average of 49.12, 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 $-20.77.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.77
Graham Number $28.55
PEmg 18.48
Current Ratio 0.63
PB Ratio 7.37
Current Dividend $3.52
Dividend Yield 5.10%
Number of Consecutive Years of Dividend Growth 18

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $493,192,000
Total Current Liabilities $788,540,000
Long-Term Debt $4,272,747,000
Total Assets $7,376,049,000
Intangible Assets $105,823,000
Total Liabilities $5,236,862,000
Shares Outstanding (Diluted Average) 228,360,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.88
Dec2017 $3.81
Dec2016 $3.52
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

EPSmg History
Next Fiscal Year Estimate $3.74
Dec2017 $3.59
Dec2016 $3.34
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

Recommended Reading:

Other ModernGraham posts about the company

Magellan Midstream Partners LP Valuation – August 2016 $MMP
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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