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Magellan Midstream Partners: Fourth in Crude Oil Correlation

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Magellan Midstream Partners

Magellan Midstream Partners (MMP), a midstream MLP involved in crude oil, refined products, and NGLs (natural gas liquids) transportation and terminaling, is ranked fourth among MLPs in terms of its correlation with crude oil. Magellan Midstream Partners has a one-year correlation of 0.37 with crude oil as of June 6. The correlation coefficient between Magellan Midstream Partners and crude oil fell to 0.24 during the last three-month period.

Magellan Midstream Partners has minimal direct exposure to crude oil prices due to its fee-based contracts. The company’s relatively higher correlation with crude oil compared to most MLPs might reflect its strong dependence on crude oil production activity. Strong crude oil and refined products volumes drive Magellan Midstream Partners’ earnings. However, volatility in crude oil prices is expected to have a lower impact on Magellan Midstream Partners compared to MLPs with direct crude oil exposure.

Analysts’ recommendations

Among the analysts, 61.1% rate Magellan Midstream Partners as a “buy,” 27.8% rate it as a “hold,” and 11.1% rate it as a “sell” as of June 6. Deutsche Bank initiated coverage on Magellan Midstream Partners with a “hold” rating. Buckeye Partners (BPL) and NuStar Energy (NS) have a “hold” rating from 73.3% and 90.0% of the analysts, respectively. Magellan Midstream Partners’ average target price of $74.4 implies ~6% upside potential from the current price levels.

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