Is Renewable Energy a Threat to Magellan Midstream (MMP)? - Analyst Blog
On Jun 9, 2015, we issued an updated research report on pipeline operator Magellan Midstream Partners LP MMP.
The partnership’s portfolio of energy infrastructure assets looks attractive as it will generate stable tariff-based revenues. However, with the growing popularity of renewable sources of energy, the partnership is now facing tough competition.
The pros and cons are reflected in Magellan Midstream’s current Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. This includes the longest refined petroleum products pipeline system in the country, access to almost 50% of refining capacity in the continental U.S. along with imports, and 85 petroleum terminals with more than 90 million barrels of storage.
The partnership has also established a track record of consistent distribution growth. Its current distribution is 71.75 cents per unit ($2.87 per unit annualized), which is 4% higher than the previous payout. Most importantly, Magellan Midstream projects full-year 2015 distributable cash flows of $870 million, indicating a $30 million increase from the previous guidance.
However, companies associated with traditional sources of energy are competing with increasing popularity of renewable sources of energy such as wind and solar. Although expensive, many customers are opting for these sustainable sources of energy for its environmentally friendly nature. This will likely impact demand for the partnership’s services.
Moreover, crude prices are anticipated to remain weak throughout 2015. This prolonged weakness may prompt lower demand for spot transportation volumes. This is reflected in the partnership’s projected 2015 earnings per unit of $3.10, which is lower than $3.69 in 2014.
Stocks to Consider
Some better-ranked players in the energy sector are Pembina Pipeline Corporation PBA, LRR Energy L.P LRE and WPX Energy Inc. WPX. All the stocks sport a Zacks Rank #1 (Strong Buy).
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MAGELLAN MDSTRM (MMP): Free Stock Analysis Report
WPX ENERGY INC (WPX): Free Stock Analysis Report
PEMBINA PIPELN (PBA): Free Stock Analysis Report
LRR ENERGY LP (LRE): Free Stock Analysis Report
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