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Magellan Heads for Stock Split

Zacks Equity Research

The board of directors of pipeline operator Magellan Midstream Partners, L.P. (MMP) has given nod for the two-for-one split of the partnership’s limited partner units.

In accordance with the split announcement, Magellan Midstream will distribute one additional limited partner share to stockholders for every single unit held as of the close of business on September 28, 2012. The distribution of units will likely take place on October 12, 2012. This is Magellan Midstream’s second stock split, with the first happening in 2005.

Following the split, Magellan Midstream’s annual cash distribution will become $1.885 per unit or 47.125 cents per unit on a quarterly basis from the current level of $3.77 per unit or 94.25 cents per unit quarterly. Outstanding limited partner units will double up to 226.4 million from the pre-split level of 113.2 million.

This stock split announcement highlights Magellan Midstream’s efforts to see better liquidity, while raising the demand for the shares and making it accessible to a larger shareholder base.

Magellan Midstream, which recently announced plans to set up a 400-mile long oil transport pipeline joint venture with Los Angeles, California-based energy firm Occidental Petroleum Corporation (OXY) – currently retain a Zacks #1 Rank, which translates into a short-term Strong Buy rating. We also maintain our long-term Outperform recommendation on the stock.

In early August, Magellan Midstream announced strong second-quarter 2012 earnings, aided by higher demand and rates for its services. Quarterly earnings per unit came in at $1.01 (excluding mark-to-market commodity-related pricing adjustments), surpassing the Zacks Consensus Estimate of 87 cents and the year-ago adjusted profit of 91 cents.

We also appreciate Magellan’s highly stable/recurring cash flows, as well as its low cost of capital and strong distribution coverage. Additionally, the partnership – with more than $500 million of potential projects under development – has attractive growth potential, and maintains a sound liquidity position.

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