Focus on organic projects
A major chunk of Magellan Midstream Partners’ (MMP) expansion capital spending since 2006 has been on organic projects. Michael Mears, chairman, president, and CEO of MMP, said during the Analyst Day meet that he thinks “70 to 80% of all acquisitions on a financial basis are not successful” in the market.
On the other hand, he believes that every acquisition that Magellan Midstream has made has been a success. Over the last ten years, MMP spent $4.4 billion in organic growth projects and acquisitions.
Disciplined approach to growth
As the above graph shows, the majority of Magellan Midstream’s capital spending has been on organic projects. According to Mears, two things have contributed to Magellan Midstream’s outperformance over the last five years. First, MMP followed its business plan. It invests in “well positioned, strong fee-based businesses.”
Second, “What we haven’t done, we haven’t participated generally in kind of what I would call the feeding frenzy of acquisitions that was occurring during this time period with the low cost of capital, the abundance of cash in the market and the resulting high prices in our opinion that people are paying for acquisitions,” said Mears.
Energy Transfer Equity (ETE), on the other hand, has predominantly grown through numerous acquisitions. However, investors dislike its latest merger plan with Williams Companies (WMB). There is increasing uncertainty surrounding the merger. The developments have impacted ETE’s and WMB’s MLP subsidiaries Energy Transfer Partners (ETP) and Williams Partners (WPZ), respectively, as well.
Magellan Midstream Partners forms 2.2% of the Guggenheim Mid-Cap Core ETF (CZA), which invests in mid-capitalization common stocks, including MLPs.
Next, we’ll look at what Wall Street analysts are saying about Magellan Midstream. We’ll also discuss Magellan’s key strengths.