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Master Limited Partnerships: Last Week’s Ratings Update

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Part 8
Master Limited Partnerships: Last Week’s Ratings Update PART 8 OF 8

MPLX Upgraded Twice after Financial Rejig

MPLX’s ratings update

MPLX (MPLX) has been upgraded twice since the beginning of 2017. Those upgrades came after its sponsor Marathon Petroleum (MPC) announced an IDR (incentive distribution rights) removal and a fall of assets generating $1.4 billion of annual earnings before interest, tax, depreciation, and amortization.

For more details, read MPLX Gets a Boost with IDR Removal, Accelerated Drop-Down Plan.

MPLX Upgraded Twice after Financial Rejig

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MPLX was upgraded last week by Wells Fargo from “market perform” to “outperform.” That’s equivalent to a “buy.” Before that, it was upgraded by Mizuho from “neutral” to “buy.” Now it has “buy” ratings from 79.0% of analysts. The remaining 21.0% have rated it a “hold.”

MPLX’s stock performance

MPLX had a strong start to 2017 after a rough 2016 when it fell 12.0%. The Alerian MLP ETF (AMLP), which is comprised of 25 midstream energy MLPs, rose 4.5%. MPLX’s peers Oneok Partners (OKS), Enbridge Energy Partners (EEP), and Magellan Midstream Partners (MMP) rose 42.7%, 10.4%, and 14.0%, respectively, in 2016.

MPLX is currently trading at an analyst estimated forward EV-to-EBITDA1 multiple of 8.9x. That’s lower than the peer median multiple of 12.6x.

MPLX’s average target price of $41.10 implies a 15.0% price return from its January 13, 2017, closing price of $35.70.

MPLX’s outlook

MPLX owns high-quality, strategically located assets in the midstream business. It’s one of the largest gas producers in the Marcellus and Utica plays. MPLX anticipates that its Marcellus and Utica shale processing facilities will average 80.0% capacity utilization in 2016 due to a 15.0% rise in overall gas volumes processed in the region. The company is expected to benefit from the recently announced drop-down.

MPLX’s primarily fee-based earnings, strong coverage, and high expected distribution growth make it an MLP to watch. However, its high leverage remains a key concern.

  1. enterprise value to earnings before interest, tax, depreciation, and amortization
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