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Why Over Half of Analysts Rate Magellan as a ‘Buy’

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Analysts’ targets for MMP

Of the analysts surveyed by Bloomberg, 55.5% rated Magellan Midstream Partners (MMP) as a “buy,” 39% rated MMP as a “hold,” and 5.5% rated it as a “sell.”

The high and low target prices for MMP are $85 and $70, respectively. The median target price for the stock over one year is $79. The median target price implies a price return of 9% from MMP’s current price of $72.7. The high and low target prices imply price returns of 17% and -4%, respectively.

In comparison, 86% of analysts rated Enterprise Products Partners (EPD) as a “buy,” 69% rated Energy Transfer Partners (ETP) as a “buy,” and 40% rated Williams Partners (WPZ) as a “buy.”

The above table shows some recommendations from brokers for Magellan Midstream Partners.

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Outlook for MMP

Magellan increased its 2016 DCF (distributable cash flow) guidance by $10 million to $910 million in May 2016 based on strong results so far in the year and “higher commodity prices than initially expected for the year.” It aims to increase its distributions by 10% for 2016 and at least 8% for 2017. MMP’s low leverage and strong coverage continue to remain its strengths.

“We remain committed to our disciplined financial policy, our focus on operational safety and our execution on strategic growth projects to benefit Magellan’s future,” said MMP’s CEO Michael Mears in the company’s 1Q16 earnings release.

Some of MMP’s key strengths include the following:

  • stable businesses
  • disciplined approach toward investments
  • conservative leverage
  • simple structure, with no IDRs (incentive distribution rights)
  • high proportion of fee-based income

MMP expects to spend $800 million in 2016 and $150 million thereafter to complete its “current slate of construction projects.” These investments should drive its earnings growth in the future.

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